Russian Consumer Confidence Plunged in March

Consumer confidence fell to -32.3 in the first quarter of 2014, a 14-point drop. Many Russians feel the sting of inflation, a weakened ruble and sanctions.

Consumer confidence fell to -32.3 in the first quarter of 2014, a 14-point drop. Many Russians feel the sting of inflation, a weakened ruble and sanctions.

President Vladimir Putin’s popularity remains at around 80 percent. Russians continue to rally around Putin in opposition to western pressure, despite the growing discomfort. The Russian government placed restrictions on imported goods from the EU, which was in retaliation to sanctions imposed on Russian energy firms and banks. However, the import restrictions caused a spike in food prices within Russia. Russia’s economy will continue to struggle as consumers have less money to inject into the economy. Consumer confidence levels have been negative since 2012, but only at single digit levels. Consumer spending in Russia has a sluggish history because many Russians have been concerned about such issues as currency devaluation, unemployment and credit card debt.

Growing Frustration within Russia

British farmer John Kopiski, who lived in Russia for almost two decades, echoed the feeling of many Russians when he complained to Putin during a talk show about the state of the economy. Putin addressed problems in the milk industry, including low-priced powdered milk imports coming from Belarus. The president expanded beyond agriculture and addressed the public at large, stating that the economic downturn is temporary and good times are just ahead. He further said that the sanctions are likely to continue for years and urged the Russian people to be patient. Even though Russians support Putin by wide margins, this does not negate the growing dissatisfaction with Putin’s economic policies. The economy will contract anywhere from three to five percent in 2015, which is the sharpest drop in 15 years.

Policy Adjustments

Some analysts urge Russians to make a fundamental transformation of their economic model. Under Putin’s rule, Russians exported raw materials through state-owned corporations and companies that are friendly to the administration. The government used the income to buy favored consumer goods from the West to satisfy the Russian populace. The government also used the money, mostly funds from the energy industry, to increase salaries and pensions in the public sector, which upgraded the standard of living for many Russians and increased Putin’s popularity. Russia’s state capitalist system has benefited the economy to a degree, but the problem is that companies and oligarchs did not use the money to bolster domestic industry.

Russia Moves Ahead

Russian leaders have a variety of strategies going forward, such as replacing lost imports. Officials also plan to create new trade relations with such countries as Greece, Hungary, Venezuela and Cuba. More importantly, Russians must strengthen their domestic economy to reduce import dependence, which requires empowering small businesses and local industry. Putin mentioned this idea, but it remains unclear as to whether the president will defy his fellow oligarchs by making the business sector more equitable.