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Russian consumers-earning and spending more.

In its December 2006 review of the Russian economy, the World Bank affirmed what the international financial press has been reporting all year-Russia is growing fast. For the years 2003 and 2004, the economy grew at over 7.0 percent (7.3 percent and 7.2 percent respectively, according to International Monetary Fund (IMF) statistics). The IMF estimates GDP growth for 2006 and 2007 at 6.5 percent for each year.

And the graph above shows, the country's consumers are participating in the growth and a logical inference from the graph is that the quality of life of the average Russian consumer is improving.

The essential dynamic the graph shows is that growth in both real household income and retail spending is maintaining a steady double (percentage) digit pace.

Trend lines (not shown) plotted through both measures confirm the steadiness of the growth rates. The trend line for retail sales (in the graph shown in blue) has a barely perceptible downward slope.

A trend line plotted through the household income measure (in yellow) slopes discernibly upward when January 2005 is taken into account. A quick glance at the January 2005 statistic reveals its extreme nature. When January 2005 is left out of the real household income trend analysis, the line still slopes upward, but appears almost flat.

The World Bank says, "A booming domestic market continues to drive strong economic growth in Russia." The World Bank thinks that economic growth in 2006 could reach 7.0 percent because growth began to accelerate after the second quarter 2006. Also of benefit to consumers, says the Bank, "Inflation has slowed considerably in the second half of the year."

And congruent with the logic of the graph on page 1, the World Bank says, "Real incomes of the population, wages, and retail trade have been growing in double digits, significantly outpacing GDP growth."

Russia, already a powerhouse for the world economy (it's the ninth biggest economy in the world according to IMF September 2006 statistics) is poised to move forward at an even faster and better balanced pace. The government has set programs in motion that are aimed at diversifying its economy thus reducing dependence on the oil sector, which has shown signs of wear and tear recently. Programs are already in place, too, to stimulate innovation. The country has a solid science and technology base in terms of both human capital and institutional support.

And finally, the World Bank observes that a bilateral agreement with the United States (US)-a requirement for accession to the World Trade Organization (WTO)-could provide entree to that organization "in the near future." Membership would energize growth further, and the country's consumers would certainly see additional benefits in terms of increased disposable income.

After construction (13.2 percent of GDP), retail trade (12.5 percent of GDP) was the second biggest contributor to Russian GDP growth during the first three quarters 2006.

One problem that could affect consumer sentiment: Unemployment. Russia's Federal State Statistics Service (Rosstat) conducted a survey at the end of February 2006 showing urban unemployment at 6.4 percent, and rural unemployment at 11.4 percent.

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Publication:Market Europe
Geographic Code:0BANK
Date:Jan 1, 2007
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