Stripping the headline reading from the volatile component and favourable technical support (one additional working day vs. May 2013), imports continued to fall further into contraction. Thus, in May the MoM SA drop in non-CIS imports gathered pace and printed a year low of 3.6%. Recently imposed trade restrictions, weaker domestic currency and cooling demand all weighed on imports of both consumer and investment goods, bolstering CA rebalancing. To note, some pick-up in machinery imports seems to be temporary and could be attributed to the weak base comparison, while fundamentals are still bleak.
Looking into 3Q14, the most challenging quarter for the CA surplus, we might see positive surprises as the usual spike in tourism imports could prove to be mild as seen in the slowdown in air traffic.
All in all, a firm downward trend in imports is set to stabilise RUB further near a new equilibrium of 35.0-36.0 against USD, unless another external shock occurs (a further escalation in Ukraine and/or collapse in oil prices).