As the West tries to bring Russia’s economy to its knees with successive sanctions packages, massive government spending and labor shortages have led to a sharp rise in real wages and consumption. And now, the economy is in danger of overheating.<\/p>\n\n\n\n
Russian deposits are growing and they are flush with extra cash \u2013 and willing to part with it. As the war dragged on, rising wages in a booming wartime defense industry forced civilian businesses to follow suit to attract workers at a time of acute labor shortages.<\/p>\n\n\n\n
The result is that Russia has unexpectedly found itself in the middle of a consumer spending boom. Real wages in Russia are soaring.<\/p>\n\n\n\n
Real wages have risen by nearly 14 percent and consumption of goods and services by about 25 percent, according to Rosstat, Russia’s state statistics agency. A further rise in real wages of up to 3.5% is expected this year, alongside an expected 3% rise in real disposable income, according to the Russian Center for Macroeconomic Analysis and Short-Term Forecasting.<\/p>\n\n\n\n
At the same time the unemployment rate, which was between 7% and 8% in 2022, is forecast to reach 2.6% \u2013 a post-Soviet record low.<\/p>\n\n\n\n
This explosive growth in wages is being felt across the socioeconomic spectrum, dramatically transforming life for a group of low-income workers. For example, textile workers, who earned around $250-350 in December 2021, can now earn up to $1,400 a month. The average salary for long-haul truck drivers increased by 38% over the previous year.<\/p>\n\n\n\n
The sanctions<\/strong><\/p>\n\n\n\n At the same time, Western sanctions and Russian capital controls have affected the capital of wealthy citizens, driving the luxury sector and giving Moscow and St. Petersburg, famed for their culture, the air of modern boomtowns.<\/p>\n\n\n\n For many Russians, there is a sense that their finances are improving. In fact, more than 13% of Russians rate their financial situation as “good” \u2014 the highest since records began in 1999, Rosstat says. Those who rate it as “bad” or “very bad” are also at a historic low, around 14% and 1% respectively.<\/p>\n\n\n\n How long will the euphoria last?<\/strong><\/p>\n\n\n\n Now the question is how long can the party last and what the consequences might be. Trust Economics points out that the boom was largely fueled by government spending, investing directly in the defense industry and through support in other sectors such as agriculture, infrastructure and the real estate market.<\/p>\n\n\n\n The central bank has struggled to deal with such initiatives and rising structural inflation of 8.7%, notably by keeping interest rates at 16% from December 2023.<\/p>\n\n\n\n So, a slowdown is predicted just this fall. Russia’s macroeconomic policies are completely unbalanced.<\/p>\n\n\n\n For now, the new wealth of Russian consumers is reshaping the domestic economy and society itself. The demographics that have seen the biggest change in income are those for the military and low-wage worker groups. A courier can now earn 200,000 rubles a month \u2014 the same as members of the Russian Academy of Sciences, which is made up of some of the country’s top academics.<\/p>\n\n\n\n Domestic tourism is also booming<\/strong><\/p>\n\n\n\n Those with previously low incomes are increasing their demand for durable goods, such as better housing or cars, as well as services, such as home repairs, tourism and food.<\/p>\n\n\n\n Capital outflows from Russia have also slowed. In the wake of the invasion of Ukraine, the central bank cited capital flight as a risk to financial stability, but recently removed it from the list of concerns.<\/p>\n\n\n\n The effects of this are becoming more apparent in various areas. Private schools in Russia have seen an increase in demand, while in the domestic Russian art market, some pieces are fetching record prices from collectors.<\/p>\n\n\n\n Shortly after the invasion of Ukraine, the Russian central bank dried up the so-called financial supply of cash in the economy, raising interest rates from 9.5% to 20% overnight and instituting capital controls. Russian exports proved more resilient than expected and it was able to secure most of the sanctioned goods through parallel imports from third countries.<\/p>\n\n\n\n The role of government spending<\/strong><\/p>\n\n\n\n Russia’s central bank identifies government spending as the main driver of GDP growth, according to a report published in June. War-related spending \u2013 including the production of machinery and clothing for the front line, the production of fuel and payments to those fighting and dying in Ukraine \u2013 has risen significantly, from about 23% before the invasion to almost 40% now.<\/p>\n\n\n\n One of the biggest contributors to the recent consumer boom has been a series of subsidized mortgage programs. Shortly after the invasion, the Kremlin greatly increased the “mortgage for all” program, which offered cheap loans for new construction that were well below the prime rate.<\/p>\n\n\n\n Home ownership has “the highest value” in post-Soviet society. Thus, the total value of mortgage loans in Russia increased by 34.5% last year.<\/p>\n","protected":false},"excerpt":{"rendered":" As the West tries to bring Russia’s economy to its knees with successive sanctions packages, massive government spending and labor shortages have led to…<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"open","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[859,5,860],"tags":[1983,428,58,2405],"class_list":["post-19557","post","type-post","status-publish","format-standard","hentry","category-economics","category-economic","category-fiscal-economics","tag-economy","tag-government-spending","tag-russia","tag-sanctions"],"_links":{"self":[{"href":"https:\/\/www.liberalglobe.com\/index.php?rest_route=\/wp\/v2\/posts\/19557","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.liberalglobe.com\/index.php?rest_route=\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.liberalglobe.com\/index.php?rest_route=\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.liberalglobe.com\/index.php?rest_route=\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/www.liberalglobe.com\/index.php?rest_route=%2Fwp%2Fv2%2Fcomments&post=19557"}],"version-history":[{"count":1,"href":"https:\/\/www.liberalglobe.com\/index.php?rest_route=\/wp\/v2\/posts\/19557\/revisions"}],"predecessor-version":[{"id":19559,"href":"https:\/\/www.liberalglobe.com\/index.php?rest_route=\/wp\/v2\/posts\/19557\/revisions\/19559"}],"wp:attachment":[{"href":"https:\/\/www.liberalglobe.com\/index.php?rest_route=%2Fwp%2Fv2%2Fmedia&parent=19557"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.liberalglobe.com\/index.php?rest_route=%2Fwp%2Fv2%2Fcategories&post=19557"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.liberalglobe.com\/index.php?rest_route=%2Fwp%2Fv2%2Ftags&post=19557"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}