“The cyclical outlook for the Russian consumer is, on the whole, somewhat less optimistic compared to consumers in the other BRIC markets,” Credit Suisse researchers wrote in the report, which explores the spending patterns and preferences of consumers in the Brazil, Russia, India and China (BRIC) markets as well as Egypt, Indonesia and Saudi Arabia.
Together, the countries represent over three billion of the world’s population with a combined GDP of over $10 trillion. “The survey provides both regional and global investors a unique bottom-up perspective of the drivers at the heart of the emerging consumption story,” Stefano Natella, the head of global equity research at Credit Suisse, said in the report. “In introducing the Credit Suisse Consumption Map, the report sets out the considerations for what to invest in and where.”
There is an across-the-board increase in consumer confidence in the emerging markets, with 38 percent of respondents saying they expect some improvement in their personal finances over the next six months, compared to nine percent who expect some deterioration, according to the survey. Brazil and China topped the list of countries with the most confident consumers, with 63 percent of Brazilians and 45 percent of Chinese saying that they expect an improvement in their financial situation. Russia followed Egypt, which sits on the last rung of the consumer confidence ladder. Some 27 percent of Russian consumers said they expect improvement in their financial situation in the coming months, while ten percent said they expect it to get worse.
Income disparity within the emerging markets is set to get wider and impact consumption patterns, says the report. A large proportion of households in countries surveyed live on less than $1,000 a month, but those in the high income brackets are expected to continue to see much greater growth than the low-income earners in all markets, the report states. The disparity in income is expected to translate into high demand for essential items such as protein consumption or mobile phones among the low-income earners in India, Indonesia and Egypt, while the consumption of high-ticket items will be more widespread in relatively rich markets such as Russia and Saudi Arabia, the report finds.
A similar countrywide poll conducted by the Levada Center between December 17 and 21 showed that the end-of-the-year rally in consumer sentiment was much more modest compared with the previous New Year holidays. The consumer confidence index inched up just four percent in December versus the previous month. By contrast, in December 2009 the Russians’ propensity to consume was thrice as high, hitting 13 percent even as the crisis hits home harder. But in 2010, only about seven percent of Russians expected improvement in their personal or family fortunes in 2011, reflecting the lackluster economic performance of the previous year.
Russians’ assessment of the current situation in the consumer market in December was only five percent above the November level, while subjective perceptions of the dynamics of personal finance over the past year continue to deteriorate for the second month in a row, the Levada report said. “What was peculiar about last year is that most Russians saw little or no evidence of economic recovery, even though negative tendencies were also not obvious,” said Marina Krasilnikova, the head of consumer research at the Levada Center. “There is no doubt that there is a steady increase in the standard of life for most Russians over the past year, especially for those in the top income bracket. But many Russians do not see any reliable basis for such growth that could help them make critical decisions about future consumption. This is why very many Russians are very cautious about spending at this stage.”
Because of their sheer size, China and India currently dominate at most income levels. The number of high income households in India, earning over $2,000 per month, is more than twice that of Russia, despite its per capita GDP being 80 percent lower than Russia’s. Demand for essential goods and services will be stronger in Indonesia, China and Brazil, as lower income earners experience higher income growth rates than their counterparts in other emerging markets, according to the Credit Suisse report. As income levels improve in other emerging markets, however, there will be an upswing in demand for international brands such as cars, perfume and fashionable goods, over locally made products, except for essentials like bottled water and dairy products. Positive real income growth for the high-end earners means that intentions to purchase items such as cars and real estate will rise steeply at the top of the income scale along with a spike in tourism, the researchers said.
The survey notes substantial structural differences in the savings culture across these markets. China and India both exhibit strong savings cultures, while Brazil and Russia have low saving habits. Russian consumers are also under-banked and under-serviced by financial products, according to the report. Only 24 percent of households in Russia have bank accounts, compared to 37 percent in Indonesia and 80 percent in China. Stock market investments or life insurance policies barely register for the average household in Russia, the researchers noted. “On many metrics, infrastructure in Russia is much more advanced than it is in many of the other emerging markets, but when it comes to financial infrastructure, the market scores badly,” the authors said. “The opportunities for the banking sector to expand both in reach and product offering seem considerable.”
Russian consumers were particularly hard-hit by the global financial crisis between Autumn 2008 and Spring 2009, according to analysts at the Levada Center, who have been monitoring the consumer confidence index every month since 1993. There was a whiff of optimism in fall 2009 as the economy showed signs of recovery, but the recovery was not sustainable, and consumer confidence slipped by the year’s end. The same picture was replicated in 2010, when initial optimism and consumer confidence gained momentum early in the year only to wane as economic growth stuttered. The peak in consumer confidence came in March of 2008, as the inflow of petrodollars boosted consumer credit and triggered a spending binge on the domestic market.
But while the shopaholic tendencies of early 2008 are still a long way off, analysts said there are many Russians who are willing to open their purses wide enough to feed another round of shopping frenzy in the near future. Renaissance Capital consumer-market analyst Natalia Zagvozdina said the modest growth in the economy this year has already boosted consumption in the country’s retail sector. “The retail sector continues to grow at a phenomenal rate in real terms,” Zagvozdina said. “There is more consolidation in the sector and many big players like X5 and Magnit are expanding market share or increasing their investment in the sector by several million dollars in the New Year.”
Other experts said binge spending is a characteristic feature of post-Soviet Russia even though the crisis has forced some consumers to take a breather. “The binge spending that was characteristic of the pre-crisis period only compensated for the pent-up demand that existed from the Soviet era, but a lot of people are still in need of high-ticket items such as new apartments and modern cars today,” Krasilnikova said. Many more need money to send their kids to fee-paying schools which they simply could not afford in the past. So, as soon as they sense that the present economic growth is both stable and sustainable, Russians will start spending again, perhaps this time with a vengeance.”
All rights reserved by Rossiyskaya Gazeta.