/ world today news/ Russians started saving less and spending more. This is an important change in consumer behavior for economic growth. Why are Russians taking out loans and making expensive purchases again? How will this help the Russian economy?
The propensity of the population to save began to gradually decrease against the background of improved consumer sentiment and the revival of consumer lending, the Central Bank of the Russian Federation said in a statement after a meeting of the Board of Directors.
“Lending activity generally remains high, particularly in the mortgage and corporate segments. The growth rate of unsecured consumer lending accelerated. At the same time, the inflow of household funds to bank accounts and deposits continues. In general, the improvement of consumer sentiments, the revival of consumer lending signal the beginning of a gradual decrease in the population’s propensity to save,” the Central Bank states.
As a result, the Central Bank expects the GDP growth rate to be 0.5% to 2% in 2023 and 0.5% to 2.5% in 2024. That is, by the end of next year, the Russian economy will reach the level of the end of 2021. It is expected that in 2025, GDP will continue to grow at a rate of 1.5-2.5%.
Such a rapid recovery of the Russian economy after the introduction of the heaviest economic sanctions in recent history arouses the admiration even of Western economists. The IMF has once again acknowledged that the Russian economy has proved more resilient to sanctions than experts predicted. After a sharp decline in the second quarter of 2022, the Russian economy rebounded strongly in the third and fourth quarters, narrowing the decline in output to 2.1%. And in 2023, Russia’s GDP will grow at all – by 0.7%. This is stated in the IMF report on the economic situation in Europe.
Even the head of the US Federal Reserve, Jerome Powell, said that Russia is doing well economically, while the US itself is having problems. He did this, of course, unofficially, as if in a conversation with Zelensky. In fact, Russian pranksters Vovan and Lexus called Powell on Zelensky’s behalf. It led him to revelations. And the head of the Federal Reserve acknowledged in the call that Washington has imposed restrictions on Russia almost everywhere it could, but little has come of those actions.
“The Russians managed to avoid the worst consequences of the sanctions. We all know the head of Russia’s central bank. She’s pretty good at her job. A very knowledgeable and smart guy,” Powell said. The US and its partners in Europe have themselves become victims of the sanctions race, the head of the Federal Reserve has admitted.
A recovery in consumer spending instead of austerity tactics is an important sign of post-crisis economic recovery.
“The population saves more in times of crisis and spends more in stable times – this is one of the main axioms of the economy as a whole. Last year, Russians switched to a crisis model of consumption – they began to save up to 15% of their income, forming a financial safety cushion, while in normal times the share of savings is 5-6%,” says Artyom Deev, head of the analytical department of ” AMarkets”.
The fact that Russians have now begun to actively spend is the result of several factors at once. “First, the holiday season is upon us. If earlier citizens planned a vacation and spent it on buying tickets and booking a vacation one or two months before the start of the vacation, now this period has increased. Not everyone has the opportunity to travel abroad, due to the decrease in air transport destinations – therefore, citizens book tours well in advance in Russia as well. Last year there was a boom in the search for vacations in Abkhazia, Karelia, Crimea, etc. This year, people are afraid that they simply won’t have enough seats, so booking hotels and tickets is done well in advance of the arrival date. Most hotels in the southern part of the country are already booked,” notes Deev.
The second factor is purely psychological. “People have gone through a crisis situation – and they are used to it because one cannot be afraid of anything for a long time. There is a certain stabilization of the general situation in the country, and people have started spending more than before because they are tired of saving,” notes the economist.
A third reason why Russians are spending more is that they fear rising prices and that low interest rates on loans will rise. So they try to take advantage of the current situation. “Mortgage lending has revived slightly, as Russians rightly believe that low interest rates on loans still allow the purchase of real estate.” Some still try to buy a foreign car, since there are almost no famous Western brands left in the distributors’ warehouses. Consumer lending is also growing. This is a consequence of the low interest rates on loans due to the stable base interest rate of the Central Bank,” explains Deev.
Overall, the change in the pattern of consumer behavior shows a reduction in fears among the population.
“When the population begins to increase spending, this indicates a decrease in the fear of an economic or geopolitical crisis and an increase in the real income of the population, which leads to economic growth in the country,” says analyst Vladimir Chernov.
According to him, not only consumer demand and credit growth will help the Russian economy grow in 2023 above the Central Bank’s previous forecasts, but also industrial production growth. It is provided by the military-industrial complex of Russia. “In March 2023, industrial production growth showed an increase of 1.2% year-on-year after a decline of 1.7% year-on-year last month, which was driven by a 30% increase in the production of metal products,” noted Chernov.
On Friday, April 28, the Central Bank of Russia left the key interest rate at 7.5%. However, experts point out that in the future the Central Bank of Russia will have to raise the interest rate due to high inflation expectations. And it will make credit less available, which could slow economic growth.
Translation: V. Sergeev
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