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Russian Incomes 'Are No Longer Falling'

Igor Shuvalov

Igor Shuvalov

Russian First Deputy Prime Minister for Economic Issues

“The incomes of Russians are no longer falling.”

...other officials and data say something else.

Russian First Deputy Prime Minister Igor Shuvalov, speaking at the Russian-Singapore Business Council on November 25, said household incomes in Russia are no longer falling. In fact, Shuvalov predicted household incomes in Russia would increase in 2017, giving a needed boost to consumer demand in the country.

But just a week later on December 2, Tatiana Golikova, the head of the Account Chamber of Russia, speaking before the State Duma, admitted real incomes in Russia (real income is calculated by subtracting inflation from the nominal income) continue to fall. She noted even government predictions were calculating a drop of 5.6 percent in 2016 compared with the previous year.

Moreover, a month before Shuvalov’s statement, experts at the Institute for Social Analysis and Forecasting noted that the decrease in household real incomes in Russia in the third quarter of 2016 was the biggest drop since 1999 – 6.1 percent lower than the same quarter (July – September) in 2015. By comparison, even in post-crisis 2009, the authors of the study note, the decrease in real household incomes in the third quarter was only 3.3 percent. For the entire period between September 2014 and September 2016 this income fell in Russia by 8.7 percent.

Over this entire 24-month period real household incomes slid downward, and the latest data (see diagram below) give little hope to believe that the fall is finished, as Shuvalov contends. That despite a rise in real wages (wages adjusted for inflation) over the past three months – of course that is in comparison to last year’s even lower levels.

The Russian Minister of Labor and Social Welfare Maksim Topilin said in an October interview with Kremlin-allied NTV television that real household incomes would not likely reach pre-crisis levels no sooner than 2019.

Average food expenditure now eats up 32 percent of the average Russian household budget, one and a half times higher than the average among 40 European countries, according to a survey published by a subsidiary of the state-run RIA Novosti news agency. Russia was No. 32 in the poll.

And whether consumer demand is set to rebound in Russia (as Shulavov expects in 2017) its main component – retail sales – continue, as before, to fall.

Data from Russia’s statistics agency Rosstat show retail sales have contracted in each month of 2016 by between 4 and 7 percent compared with the previous year. And with slack consumer demand, resuscitating retail sales to their 2014 levels within the next five years is highly unlikely, according to Igor Polyakov of the Center for Macroeconomic Analysis and Short-Term Forecasting.