Rosstat published the full structure of all consumer income and expenses for Q2 2020. Usually, the trends are clear and according to operational data (retail turnover, salaries of employees of organizations), but during a crisis and self-isolation restrictions for assessing the situation, a full range of data is extremely important. However, statistics confirm our hypotheses.
With a drop in total income by 7.7% y/y. The “backbone” of income (salaries and pensions) suffered little (in general, they were even able to make a positive contribution to the overall dynamics – +0.3 pp). Revenues sagged due to the business sector and other segments (-8 pp). This fundamentally distinguishes the current situation from the one that we observed during the 2015 crisis. Then, due to a prolonged drawdown in the incomes of the bulk of the population, demand could not move to growth for a very long time. Now, we believe, this will be achieved faster. In turn, the drop in entrepreneurs' incomes will have a greater impact on the investment segment than on the retail turnover.
Accordingly, the reasons for the failure of consumer spending are not in wage cuts, but in 1) directive self-isolation restrictions, 2) forced savings – because of the inability to spend money and / or because of the “precautionary” motive. The growth rates of household deposits remain high (+ 10% y/y), despite the fact that they grew more slowly last year (+ 7-8% y/y).
The accumulation of cash, incl. as a form of forced savings: according to Rosstat data, about 1.5 trillion rubles in cash have been added to the population since the beginning of the year. At the same time, non-mortgage lending to the population has significantly slowed down its growth in recent months: earlier, the debt increased by ~ 20% y/y, now its growth has slowed down to 12% y/y. And this situation is associated not with a decrease in demand for borrowed funds, but with an increase in credit risk.
As a result, net credit to the population (loans minus deposits and cash) in Q2 2020 decreased significantly, which to a greater extent led to the collapse of spending. The graph on the right shows that of 21.7% y/y. falling consumer spending in Q2 about 14 p.p. the reduction was due to this factor and only 7.7 p.p. – due to the failure of income.
Overall, the data suggests that consumption has the resources to grow further. Thus, a significant part of the funds that people did not spend due to self-isolation are already financing consumption, and in this direction the situation will improve. In addition, over time, the credit channel will begin to open up. Finally, the fact that salaries and pensions have practically not suffered (they finance the bulk of consumer spending) gives hope for recovery growth in the coming months and a speedy transition of consumption to y/y growth in real terms.
At the same time, recovery to pre-crisis levels will take a much longer time: this will require an increase in wages and a decrease in unemployment.