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Economy in July: growth slowdown


According to Rosstat, the unemployment rate was at 5.4% for the third consecutive month in July. At the same time, the SA unemployment rate edged down to 5.7% in July from 5.8% in the previous month.

Real wages growth remained at 10.2% YoY in July, despite CPI acceleration from 4.3% to 5.6%. Nominal wages growth strengthened in July to 16.3% from the downwardly revised 14.9% YoY in June.

Real retail sales growth declined in July to 5.1% YoY from 6.9% YoY in June, mainly dragged down by the moderation in food sales growth, which decelerated to 1.3% YoY (-0.8% MoM SA). Investment growth surprised, falling to 3.8% YoY, the lowest level since April 2011, from 4.7% YoY in June. A softer investment growth contradicts the rebounded IP increase in July, as well as PMI Manufacturing and the preliminary July import data, which showed acceleration in investment goods imports last month. At the same time, construction dived into the red, with YoY growth at 3.2% in July (down from 5.3% in June). 

Retail sales and investment growth rates declined to multi-month lows. The unexpected drop in investments is a worry. It might be due to tighter local monetary conditions (and, thus, slowing corporate lending growth) and uncertainty surrounding the global/local economy outlook.

The only positive we derived from the report was the persistent tightness on the labour market: unemployment fell on a SA basis and real wage growth was stable in the low teens despite the increase in inflation. The slowdown in growth is in line with our expectations of 3.5% GDP growth this year.

We believe it is now more likely that the CBR will refrain from raising rates for another month. CPI dynamics over the next few weeks and banks’ lending activity in August will be crucial for the CBR’s decision. The CBR might view the RUB strength of the last month and a half as sufficient monetary tightening in the current environment. 

Maxim Oreshkin, Daria Isakova
VTB Capital analyst

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