Slowing consumer demand will create inflation risk below the baseline forecast, the Ministry of Economic Development warns. The growth of Russian debt on loans may begin to slow down consumer demand by the end of the year.
An increase in the debt burden of Russians may lead to the fact that consumer loans by the end of 2019 will begin to slow down consumer demand in the Russian economy, the Ministry of Economic Development warns in a new review “The picture of lending”.
Taking into account the growth of the debt burden on the population and, accordingly, the growth of interest payments, the positive contribution of consumer lending to the growth rate of household spending on final consumption in the third quarter of the year fell to 0.5 percentage points in comparison with 1% in the first half of the year, estimated by the Ministry of Economic Development. “At the end of the year the contribution of consumer lending may go into the negative area”, - said the ministry.
The Ministry of Economic Development has already stated that, according to its data, Russians take new consumer loans mainly not to expand consumer spending, but to maintain the level of consumption or refinancing of old loans.
Weak demand inhibits inflation. The economy shows a slowdown in consumer demand, one of the reasons for which is the increase in the tax burden due to an increase in VAT from 18 to 20%. In August, retail trade turnover, an indicator reflecting the dynamics of consumption, grew by only 0.8% after 1.1% in July, according to Rosstat.
Weak consumer demand is the main reason for the continued slowdown in inflation. Annual inflation in August slowed to 4.3% from 4.6% in July. According to the results of September, the Ministry of Economic Development expects 3.9-4%. Prices in weekly terms have not been rising over the past nine weeks, according to Rosstat. The Bank of Russia has already lowered its key rate to a minimum since 2014 - 7% per annum.
A slowdown in consumer lending growth (in August, the rate decreased to 22.9% from 23.6% in July on an annualized basis) amid a reduction in other types of lending will lead to an increase in the disinflation trend, the Ministry of Economic Development warns. This means “increased risks of a stronger slowdown in inflation in the future relative to the base forecast scenario”, the ministry warns. According to the basic forecast, inflation by the end of 2019 is expected to be at the level of 3.6-3.8%, according to the results of 2020 - at the level of 3%. The growth of bank lending to the private sector, including corporate loans, in 2019 is 4.5% of GDP, and in order to ensure the inflation target of 4%, private credit growth should be at least 5.5-6% of GDP, the ministry notes.
The credit impulse is weak due to budget. The Ministry of Economic Development explains the weakening of the “credit impulse” for three reasons: low execution of federal budget expenditures: according to the results of August, the “underfulfillment” of budget expenditures from the 2017–2018 schedule is estimated at about 200 billion rubles .; higher than expected growth rates of non-oil and gas revenues of the federal budget; less than the current surplus of the federal budget, the volume of Central Bank interventions, which is associated with the suspension of currency purchases by the Bank of Russia in September – December 2018. To cool the market for unsecured lending, from October 1, the Central Bank introduced an indicator of the debt burden of borrowers, which banks should expect and, on its basis, decide on a loan. The Ministry of Economic Development believes that this measure will further slow down the growth of unsecured consumer loans.