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Economy in May: beats consensus but running above potential


Yesterday, Rosstat released its economic data for May.

Consumption and incomes. Retail sales growth accelerated to 6.8% YoY in May from 6.5% YoY in April (consensus 6.1% YoY). Real wages increased 11.1% YoY up from 10.4% YoY (consensus 9.6% YoY) supported by record-low CPI (3.6% YoY in May). Nominal wages were up 15.1% YoY (same as in April).

The unemployment rate edged down to 5.4% (above the consensus forecast of 5.7% YoY) from 5.8% in April mainly on seasonally higher demand for labour in May. The SA unemployment rate was up to 5.7% from 5.6% in the previous month.

Investment growth was on a par with April at 7.7% YoY in May, significantly above consensus’ 6.9% YoY. Investment was probably supported by accelerating credit growth (to 28.8% YoY in May) and manifested itself in higher imports.

Most of the data for May is above consensus with robust consumption and investment growth. Strong investment is not surprising given accelerating production activity and high capacity utilisation levels. Everything looks fine except that internal demand is running above potential, implying increased inflationary pressure and import growth (growth of 3.0% YoY in May

for non-CIS imports from high 2011base). With Brent at USD 95/bbl, Russian external accounts will come under pressure soon, with the current account balance sliding into the red in June (on the technical announcement of dividend payments by Russian companies) and August (on seasonal growth in service balance deficit). This would translate into weaker RUB and, alongside strong wage growth, into higher inflation and, eventually, tighter monetary policy. While data for May looks solid, we expect growth to fade in 2H12 and we reiterate our 3.5% YoY GDP forecast.

We see the CBR keeping interest rates on hold at the next policy meeting in July, as the May data was better than expected; however, it looks as though tighter monetary policy cannot be avoided.

Alexey Moiseev, Maxim Oreshkin, Daria Isakova
VTB Capital analyst

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