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Economy in March shows mix of strong consumption and slowing production

Economy in March shows mix of strong consumption and slowing production

Yesterday, Rosstat released its economic data for March.

Consumption. Retail sales growth edged down to 7.3% YoY in March, from 7.8% YoY in February (which was revised up from 7.7% YoY), below our forecast of 8.0% YoY and consensus of 8.0% YoY.

Incomes. The growth in real wages was probably supported by consumption, and was almost unchanged at 12.6% YoY in March (the February figure was revised down from 13.3% YoY to 12.1% YoY). This came slightly below our forecast of 13.0% YoY but above the consensus 11.1% YoY. In March, the growth in nominal wages was also on par with the previous month, at 16.8% YoY.

The unemployment rate was unchanged at 6.5% in March, more than the 6.4% YoY forecast by both ourselves and consensus. Both Manufacturing and Services PMIs indicate weaker employment growth in March.

Investment growth dropped to 4.9% YoY in March from 15.1% YoY in February, significantly below the 14.1% YoY consensus and our more bearish expectations of 13.0% YoY. This was in line with the weak industrial output reading (2.0% YoY) and the decline in construction (-0.7% YoY) last month.

The March figures suggest that after strong, accelerating growth in 2mo12, the economy returned to a softer production performance with the growth in consumption still strong. This coincides with our end-year GDP forecast of 3.5% YoY. The plunge in investments indicates that without structural reforms they cannot be increased steadily. In this regard, although the monetary authorities might be concerned about the weak growth in production, we expect the CBR to stay on hold in May, on the assumption of 2H12 CPI risks. 

Alexey Moiseev, Aleksandra Evtifyeva, Daria Isakova, Dmitri Fedotkin
VTB Capital analyst

CBR, unemployment

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