Many Russians could descend into poverty

The fourth economic crisis to hit Russia in the past 25 years is being accompanied by an unprecedented decline in household incomes as well as rising poverty levels over the last 15 years. This is happening because of the absence of financial and institutional resources, within government and society, for social adaptation. The forecasts are disheartening; analysts are expecting a massive decline in living standards and in the quality of life of citizens. Gains made during the last decade, in terms of improving poverty levels in society, could be liquidated in 2016, returning things to the situation that existed in 2005.

In 2012-2013, no one could have foreseen the sanctions wars, and few predicted the fall of oil prices to current levels. Yet even then, many economists were forecasting that, in the near future, the consumption bubble, bloated by super-high oil prices and generous budget payments, would burst. Since 2006, the level of wages in the GDP in Russia grew, while in the rest of the world these levels declined since 2007. This, however, had a negative impact on the competitiveness and productivity of the economy. In 2014, this indicator was comparable to the world average (52%) and exceeded the average in developing countries (41%) by 11 percentage points.

The year 2015 was marked by the sharpest real drop in incomes, wages, and pensions in the new millennium, accompanied by an increase in underemployment, which will continue in 2016. Russian experts and analysts at the World Bank agree that even the official poverty rate will increase to 16% in 2016. Oil rents will no longer suffice to support household needs.

Neither the state, nor companies, nor the majority of households have the resources needed to support the consumer-based model of economic growth, while effective instruments for the redistribution of wealth and social adaptation have not been created. “The country is moving down to a normal level of wages and consumption. This is unfortunate for the people, but this is the reality,” said Leonid Grigoriev, chief adviser to the head of the Analytical Centre of the Russian Government.

Despite the rapid growth of incomes, due to constant ultra-high concentration of wealth in certain social groups and regions, the level of inequality in society has not changed. In 2014, 20% of the population lived on incomes of 7,000 rubles per month, and in January-September 2015, they accounted for only 5.6% of total revenues.

However, the real level of stratification of incomes is much higher in Russian society than is admitted. In October 2015, Russian respondents believed that 1% of the wealthiest citizens of Russia received 53% of total revenue. However, the actual figure is closer to 70%, according to a study entitled “Pitfalls of Perception-2015”, conducted by Ipsos Public Affairs.

According to Russian analysts, 30% to 50% of the population of the Russian Federation may, in the near future, join the army of the poor; primarily children, pensioners and their families, as well as part-time workers. If they do not know this yet, they will learn this in 2016.

First published in Russian by Kommersant.

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