The economic data for May will likely be negative due to the extended May holidays. On the production front, we are unlikely to see the growth drivers (cold weather, unusual pick-up in gas extraction) that supported the IP reading in March and, especially, in April. As a result, IP YoY growth is set to return into the red.
As for local demand, the 12% decline in car sales and the strongest contraction in non-CIS imports since December 2009 last month imply that the consumer and investment data are to worsen greatly in May. Fixed capital investment is expected to stay in the negative area and drop 2.3% YoY, with retail sales growth to decelerate to almost 3% YoY (from above 4% YoY over recent months).
On the labour market, which started cooling in April, we expect a further increase in the SA unemployment rate amid bleak economic growth. However, seasonal demand on the labour force is set to hide this: our forecast implies an NSA unemployment reading of 5.3% (vs. 5.6% YoY in the previous month).
The weekly CPI will likely bring further evidence of headline disinflation, as the key growth drivers (veg. prices) over April-May are reverting into critical drags on CPI growth. For the full month, we expect the headline CPI to slide below the 7% mark (to 6.8-6.9% YoY, from this year’s peak of 7.4% YoY in May).
In our view, discussions about a possible recession in Russia's economy will intensify after the May statistical report, pushing the CBR to take economy risks more seriously. Combined with a further slowdown in headline CPI, this could push the regulator to take more decisive steps as early as July.