In contrast to 2012, when wholesale and retail sales were the key growth drivers of Russia’s economy, over 1H13 this GDP item was soft and decelerating. Its contribution to the YoY GDP growth dropped from 2.0pp in 2Q12 to just 0.2pp in 3Q13 and the reported period was the third in a row when retail was not one of Russia’s top growth drivers.
Slower growth in the manufacturing and construction industries, as well as in real estate (although the latter was still the key YoY growth driver) pushed the headline reading down, suggesting subdued local demand. Also, taxes on products added a mere 0.06pp in the reported period. Put into an historical context (0.74pp on average in 2011-12), that outlines worrisome trends in the economy with household spending gradually cooling (less growth in public expenditures, higher unemployment and harsher conditions for non-collateralised retail lending) and no upturns in investment activity yet.
However, one positive is that having shaved 0.5pp in 1Q13, over 2Q13 the mining sector bounced back and added 0.1pp. This might be linked to the early signs of bottoming out in the advanced economies and China which have been seen more and more extensively since late spring.
We are retaining our FY13 GDP forecast intact at 1.7% YoY (note that consensus is drifting closer to our figure, as is the Ministry for the Economy). That implies YoY growth rebounding in 2H13 on a reversal in the base effect in investments, a good harvest this year (the negative 0.8pp contribution from the agricultural sector in 3Q-4Q12 will likely turn into a highly positive one this and next quarter) and faster fiscal spending in annual terms.