Consumer spending will remain high through H1 2012, benefiting the consumer goods and technology sectors. However, a struggling industrial sector and a rise in inflation will reverse this trend starting in H2 2012.

Drivers

Historically low inflation, averaging 6.1% in 2011, will support household spending through H1 2012. However, utility and residential tariff hikes scheduled for June will lead to a sharp uptick in consumer prices in the second half of the year.

Unemployment, at 6.1% in December, is at a historic low and is supporting a positive consumer outlook.

High energy prices are supporting the ruble, driving up consumer demand for imported goods.

Frontier Strategy Group View

High consumer spending will buoy demand for consumer goods, pharmaceuticals, consumer electronics, and durable goods through the first half of 2012.

A decline in energy prices remains a downside risk to the broader Russian economy, including to the consumer sector.

Over the next two years, some of the social spending increases promised by Vladimir Putin during his presidential campaign will be carried out, providing support for Russian consumers.

Social spending increases will have the strongest impact on sales of fast-moving consumer goods and out-of-pocket pharmaceuticals.