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Russian economy show signs of overheating in February


Yesterday, Rosstat released its economic data for February.

Retail sales growth rebounded to 7.7% YoY, from 6.8% YoY in January, above our aggressive forecast of 7.0% and the Bloomberg consensus of 7.3%.

Real wages growth probably supported consumption growth (in line with our view, see 2012 CIS Economic Outlook: Reacting to the Global Environment, of 14 December) having jumped to 13.3% YoY in February from the (revised upward) 10.5% YoY in January, above both consensus (8.8%) and our forecast (9.5%). While such a rise was partly due to inflation dropping to historical lows (3.7% YoY in February), nominal wages growth also accelerated significantly to 17.5% YoY, from 15.1% YoY in January. That probably reflects high fiscal spending at the start of the year.

The unemployment rate edged down to 6.5% in February, from 6.6% in January, less than our forecast of 6.3%. BBG consensus was 6.6%.

Investment remained elevated, at 15.1% YoY in February, slightly lower than the 15.6% YoY in January but above us (13.5% YoY) and consensus (11.5% YoY). Rosstat also revised its 2011 investment data from 6.2% YoY to 8.3% YoY. This and the high base effect partly explain the recent surge in investment.

This is the second consecutive month of strong, accelerating growth. Such a rapid expansion is a concern (the economy could be overheating, as in 2007-08) and might be partly due to high fiscal spending in late 2011-early 2012. As MinFin has been carefully sterilising the budget deficit and the CBR’s FX interventions are small, inflation is not yet a concern. However, with such rapid economic growth, any policy loosening would create inflation risks. Hence, the CBR is definitely on hold. At the same time, leading indicators imply that this growth is not sustainable. Still, 2mo12 creates upside risks to our 2012 GDP growth forecast of 3.5%.
Alexey Moiseev Aleksandra Evtifyeva Dmitri Fedotkin
VTB Capital analyst

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