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Economy in April points to overheating


Yesterday, Rosstat released its economic data for April.

Consumption. Retail sales growth edged down to 6.4% YoY in April (from 7.3% YoY in March), below our and the Bloomberg consensus forecasts of 7.0% YoY.

Incomes. The growth in real wages increased to 10.4% YoY in April (from 9.0% YoY). This came below our bullish forecast of 13.3% YoY and the consensus 11.0% YoY. Nominal wages growth also accelerated to 14.3% YoY (from 13.0% YoY). Rosstat greatly revised down the real and nominal wages in March.

The unemployment rate shrank dramatically to 5.8% in April (from 6.5%), below our and the consensus forecasts of 6.4% YoY.

Investment growth surprised with a 7.8% YoY jump in April (up from 4.9% YoY), above the 6.3% YoY consensus and our bearish expectations of -2.5% YoY.

Meanwhile, construction improved sharply to 3.8% YoY growth in April (from a 0.7% YoY decline in March).

The data for April reveals a continued boom in local demand (retail sales and investments) accompanied by slowing production.

Rising incomes and a tight labour market, coupled with low inflation (3.6% YoY in April), bode well for consumption growth in 2H12, but raise concerns that the economy might be overheating, similar to 2007-08. We estimate that, seasonally adjusted, the unemployment rate in April dropped to 5.6%, below the pre-crisis level, highlighting inflation risks.

The jump in investment is surprising given the slowing production and strong base effect and poses upside risks to our 2012 GDP forecast of 3.5% YoY. Investment has probably been supported by accelerating credit growth and manifests itself in higher imports rather than in local production.

The economic data for April is likely to make the CBR comfortable to keep interest rates on hold at its next policy meeting in early June, despite the moderation in production (similarly to its May press release).

Alexey Moiseev, Aleksandra Evtifyeva, Daria Isakova
VTB Capital analyst

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