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RUSSIA'S CONSUMPTION BOOM TO SPREAD.

The agonizing decline in private sector spending that accompanied the economic crash of August 1998 is becoming a distant memory as foreign investors flock back in and Russian consumers frequent urban retail establishments in ever-growing numbers.

Until recently, the household consumption boom was limited to the Moscow metropolitan area.. Almost a third of all Russian consumer spending is concentrated in the capital. However, there is increasing evidence that healthy sales gains are spreading to St.. Petersburg and other major metropolitan areas. The driving force behind strong consumption gains is the evolution of the Russian middle class, which now accounts for about 30 percent of Russian households.

Purchasing power parity per capita rose approximately 12 percent from 2002 to 2003 and there is a perceptible increase in real household income. Double-digit inflation, which has eaten into household budgets in recent years, appears to be a thing of the past and that will ultimately bring the cost of financing down to an attractive level.

Unemployment has declined over the past year and that is bolstering consumer confidence. Russians are increasingly willing to make high-end purchases with money they had been stashing away in case of another economic crisis.

The nearly 5 percent increase in the value of the national currency (the ruble) against the dollar during the first three quarters of this year have put more imported goods and services within reach of the average Russian consumer. Consumer goods sales achieved year-on-year growth in excess of 10 percent during that period, with orders for imported consumer goods up in excess of 15 percent.

Demand for imported consumer goods will remain strong through the first half of 2004. Sales of imported food products and other non-durables should experience double-digit growth through much of 2004. Sales in secondary urban areas should experience healthy gains during 2004 but profit margins will be lower than in Moscow because consumers there are less accustomed to pay a premium price for imports.

Russias purchasing power parity per capita of US$9,200 reflects a consumer base in which the average household has a small but growing margin for discretionary spending. On average, Russians have a greater degree of discretionary income than nations with comparable income levels because of the relatively low cost of housing and utilities.

Wages are generally lower in secondary urban areas, but the situation is improving. In those areas, Russian products still enjoy a predominant market share, but the panorama will change over the next year as foreign suppliers enter the market with a willingness to accept lower profit margins while they gain a customer base.
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Publication:Market Europe
Geographic Code:4EXRU
Date:Nov 1, 2003
Words:431
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