Russia: Year-End Bonuses Gave Consumption A Little Boost

Strong growth of salaries in sectors related to oil&gas, financials, and construction may have contributed to above-expected consumption growth in January, though the impact was probably not strong. Budget spending and the savings rate will determine consumption and corporate activity this year.

Rich households getting richer, providing limited support to consumption

Russian retail trade growth accelerated from 1.9% year on year in December 2019 to 2.7% YoY in January 2020, beating the consensus forecast of 2.2% and our 2.4% YoY expectations. This outperformance may have been partially caused by above-expected income growth in December (the data release on income lags consumption by one month): real salaries growth has significantly accelerated from 2.7% YoY in November to 6.9% YoY in December, which is a very positive surprise. We have several observations on the matter:

  • The sectors which contributed the most to the December acceleration in salary growth include construction (7% of employed, acceleration in nominal salary growth from 6.5% YoY in November to 10.7% YoY in December), trade (16% of employed, acceleration from 5.4% to 9.2%), transport (9% of employed, acceleration from 7.4% to 9.3%), finance (2% of employed, acceleration from 8.4% to 20.3%), and real estate operations (2% of employed, acceleration from 6.3% to 13.3%).
  • Salaries in the construction sector may have benefited from the year-end inflow of the budget spending on infrastructure (consolidated budget spending on the National Economy accelerated from 9% YoY in 11M19 to 29% YoY in December), while employees in the rest of the above-mentioned list probably received increased year-end bonuses in the oil trade and transportation sectors, as well as in finance (thanks to the successful year on financial markets).
  • Given that all the listed sectors except for construction (oil&gas, finance) enjoy above-average income levels, a significant chunk of the inflow may have translated into consumption abroad and could have returned on the financial market through brokerage accounts, which are gaining popularity amid the strong financial market performance. According to the Central Bank of Russia data, the amount of open brokerage accounts increased by 55% YoY in 9M19 to 3.4 million and probably continued accelerating in 4Q19.
  • Banking statistics shows no acceleration in retail deposit growth (around 10% YoY adjusted for revaluation effect) in November-January and no material deceleration in retail loan growth (19% YoY in November-December and 18% YoY in January), suggesting that extra income was neither saved locally nor used to redeem household debt. 
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