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Consumer confidence strengthening in 2Q12


According to Rosstat, Russian consumer confidence advanced to -4% in 2Q12, from -5% in 1Q12, with a broad-based recovery in all the components. The age breakdown revealed the strongest improvement among the young (16-29 years old) and the weakest among those aged 50+. On the sub-index level, the index of the expected economic changes in the short-term stayed flat in 2Q12, the index of past economic changes improved to -1% from -3%, the index of expected changes in the level of incomes dropped to -1% from -0.1% and the index of past changes to the level of incomes remained unchanged. Furthermore, the index of favourable timing to make big purchases progressed to -18% from -20% in 1Q12, and the index of favourable conditions to make savings has also advanced, to -33% from -37%.

Record-low inflation coupled with a recovery in real wages might have lifted consumer confidence in 2Q12, as manifested in the strong retail lending growth that quarter. Meanwhile, a further acceleration in CPI, weaker RUB (we expect USD/RUB at 34.12 end-2012) and softer increase in fiscal spending (around 6.5% YoY in 2H12 vs. 25% YoY in 1H12) in the second half of the year might drag consumer confidence down during the next quarters, underpinning our GDP forecast for 2012 at 3.5% YoY. At the same time, the higher inflation pressure and favourable improvement in consumer confidence provide arguments for the CBR to start tightening later this year. This underpins our forecast of a 50bp hike in policy interest rates in 2H12.

Maxim Oreshkin, Daria Isakova, Alexey Moiseev
VTB Capital analyst


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