Published 14-08-2012, 07:54
One of the real surprises of the past several years is just how well Russia has fared in comparison with the European Union. Whereas, at the start of the financial crisis in 2008-09, Russia’s economy came screeching to a halt and suffered a dramatic fall in output, since 2010 Russia’s has been growing at a steady 4% clip and has fully recovered and surpassed its pre-crisis peak. Russia’s growth rate is decidedly lower than before the crisis but, all things considered, it’s respectable. Although their initial declines in output were much less severe than Russia’s almost 8% plunge, Eurozone economies have been essentially stagnant for the past two years, with several countries in outright recession and others flirting with double-dip territory. Considering how abysmally European institutions have performed to this point, it’s anyone’s guess as to when Western Europe will return to solid and sustainable economic growth or if it will turn into a continent-sized version of Japan that is in perpetual deflation and recession.
It’s bizarre and unexpected, but Russia’s response to the financial crisis has, by basically any standard you choose to adopt, been far superior to those of the EU countries. Considering Russia’s vulnerability to a decline in the price of oil, this could very well change in the near future, but, having grown up during a time when Russia was an abysmally governed basket case that was crippled by hyperinflation and outright defaulted on its debt, it’s still surprising to see it outperforming its Western neighbors.
The Russians themselves are starting to notice this. While they haven’t yet gotten too cocky, the 2008-09 crisis seems to have rightfully humbled almost everyone, they are beginning to realize that their performance of the past few years is actually something to take pride in and that they are not necessarily "lagging behind” the Europeans (who have always been the target of a pretty serious inferiority complex).*
I thought I would present the following article from Vedemosti because it’s a nice overview of where Russia’s economy is in 2012 and nicely shows that cautious optimism that, amazingly, still holds sway there:
All the talk about crisis isn’t stopping Russian consumers from spending more.
In July, consumer confidence in the European Union fell to its lwest level since 2009, and consumer expenditures in France, one of the most stable countries in Europe, in the second quarter were 0.2% lower than they were in the first. Economists from Euromonitor expect that demand will continue to fall: consumer expenditures on goods and services in Western Europe will fall by 0.9% in 2012 and spending on food will fall by 2.7%. Europeans are postponing large purchases: in the first half of the year, automobile purchases in the Eurozone were 6.8% lower than a year earlier according to the European association of automobile manufacturers. The largest changes took place in food retail. The crisis is forcing Europeans not only to buy less, but to change their habits: to choose discounters instead of supermarkets, to buy less expensive produce, and to look on the internet for better prices.
The situation in Russia is almost completely different. According to data from Rosstat, real disposable incomes in the first half of 2012 grew by 2.7%, retail trade turnover increased by 7.1%, and the automobile market by 14% (in comparison with the analogous period of the previous year). In the consumer market the continued growth in salaries in the state sector (the armed forces, law enforcement, etc.) was very important, according to the chief economist of "Otkritie” bank Vladimir Tixomirov. In the regions, where a large share of the population works in the state sector, demand is growing: and in the large cities, where the main part of the population works in the private sector and the growth in wages is measured in fractions of a percent, demand is falling, but not significantly.
The crisis in the European economy is being reflected in the behavior of Russian consumers with a delay of about eight months, according to Deloitte partner Egor Metelkin. According to him, so far Russians have preserved a reserved sense of optimism: "in 2009 about 51% of Russians felt that the country was in a recession, and when we took a survey at the end of 2011 40% of the respondents said that they felt that their buying power would be better in 2012.” The Nielsen consumer confidence index increased by 3 points in the 2nd quarter in comparison with the 1st quarter of 2012, and by 5 points in comparison with the 2nd quarter of 2011. In comparison, from the 1st quarter of 2012 to the 2nd, the global consumer confidence index fell by 3 points.
The Russian consumer has not yet started to economize. Consumers aren’t lowering expenditures, according to Maria Kurnosova, a representative of Auchan. But the crisis of 2008-09 showed that in the case of a reduction in incomes Russians do in fact change their habits like Europeans are now doing: the choose discounters and cheaper products. For example X5 Retail Group were the swiftest growers in 2009: their sales grew by 17% while Perekrestok supermarkets didn’t experience any growth at all.
Retailers are convinced that, so far, there are fewer signs of a sharp fall in consumer demand now than back in 2008-09. "There isn’t yet any consumer boom like there was in 2008 on the eve of the last crisis. The behavior of consumers changed during the crisis: the consumer became more rational, and is now spending money in a very balanced way” said Kurnosova.
* This is also, of course, dangerous in that it could cause Russians to have less respect for "European values.” I think most analysts and commentators have radically understated the extent to which the failure of the EU to adequately address its economic problems will weaken support for political liberalism and democracy.