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Russia’s mean household income of US$21,000 is not reflective of the economic realities on the ground, as it is skewed upwards by the lofty remuneration of the country’s super-rich. In fact, about two-thirds of Russian households have a disposable income below this figure. A more accurate indicator is therefore the median income, the figure that divides household income distribution into two equal groups, half with disposable income above that sum and half below, which stands closer to US$16,000.
The middle class – defined as households with between 75% and 125% of median income – constitutes about a third of the total number of households in Russia. Prior to the global economic downturn of 2008-2009, the middle class had been experiencing negligible growth, edging up 0.1% year-on-year in both 2006 and 2007. The economic turbulence of 2008 saw the number of households in the middle class plunge by 9.3%. However, it quickly resumed healthy growth, rising 2.8% in 2009 and a further 6.4% in 2010, and continues to expand. The middle class is generally closer in lifestyle to the lowest end of the socioeconomic scale than to Russia’s wealthy elite. However, though their income is not especially high in European terms, the emergent middle class are likely to absorb the aspirations and tastes of their richer counterparts. A solid market for modest luxuries and practical big-ticket items, such as family cars, white goods, electronics and furniture, will thus establish itself among the middle classes.
In fact, Euromonitor International data indicates that households with annual disposable income between US$15,000 and US$25,000 now outnumber those with less than US$10,000. In conjunction with the removal of incentives, it is therefore hardly surprising that domestic value-for-money brands such as Lada and ZAZ are losing share in Russia. In the meantime, foreign carmakers have launched new sedans at the Moscow Motor Show such as the Chevrolet Cobalt, Mazda 6, Nissan Almera and Opel Astra sedan.
In the context of a declining population (see the Euromonitor article “Russia’s Population in Decline despite Spike in Birth Rate”), the outlook is for fewer households with annual disposable income below US$15,000 and those with US$25k-US$55k are actually forecast to overtake US$15k-US$25k homes in 2017. Carmakers which offer aspirational vehicles to appeal to Russia’s burgeoning middle class will therefore prosper in Russia. However, the number of wealthy households – those with disposable income over US$55,000 per annum – is expected to grow at the fastest pace in Russia, essentially doubling in number by 2020 and thus boosting the presence of premium and luxury carmakers. No wonder then that, also at the Moscow Motor Show, Audi chairman Rupert Stadler announced plans to commence local production of four Audi model lines – the A4, A6, Q5 and Q7 – at VW’s Kaluga plant from 2013.
Source: Euromonitor International