Rising wages and government spending fuel the surprising Russian boom
Contrary to expectations, the Russian economy is experiencing growth in consumption and real wages. According to the Financial Times, Russians have more money and are eager to spend it, fuelling a consumption boom. This phenomenon is the result of increased government spending and labour market shortages.
According to data from the Russian Statistical Office Rosstat, real wages in Russia have risen by nearly 14%, while consumption of goods and services has increased by approximately 25%. This is a significant change compared to the early days of the invasion of Ukraine in 2022 when many entrepreneurs feared an economic collapse.
Wage growth is visible in various sectors of the economy. Workers who earned the equivalent of £200-£280 per month in December 2021 can now expect up to £1,120. There are many examples of such "spot" increases. The average salary of long-haul truck drivers has jumped by 38% year-on-year.
Boom in consumption drives the economy
Rising wages translate into increased consumer spending. Russians are eager to spend money on domestic tourism, dining out, and durable goods.
The boom is also evident in the real estate sector. Sergei Skatov, an expert on the Russian real estate market, observes that "developers can sell nothing all year and yet remain profitable. They have already sold everything they can build over the next three years."
Increased consumption is also noticeable in the luxury sector. One Moscow resident recounts that he and his wife keep a list of luxury vehicles spotted outside their exclusive apartment complex. A neighbour boasts about photos of his pet lion.
War economy fuels consumption boom
The consumption boom is primarily driven by government spending, particularly in the defence sector. The Russian central bank also cites government expenditure as the main factor driving GDP growth.
Another issue is the labour shortage. As one restaurateur from Saint Petersburg highlighted in an interview with the Financial Times, staff shortages are colossal. This could mean that Russia's potential limits for economic growth are already apparent.
