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Russia Output & Demand – July; local demand grinds to a halt


Yesterday, Rosstat released its economic statistics for July.

The unemployment rate remained at 4.9% (vs. 4.9% in June and 5.0% BBG); and SA UR – at 5.1% for the second consecutive month;

Fixed capital investments: -2.0% YoY (vs. +0.5% and -1.0%);

Retail sales: +1.1 % YoY (vs. +0.7% and +0.9%);

Construction: -4.6% YoY (vs. +1.2% the previous month);

New houses: +38.5% YoY (vs. +35.3% the previous month);

Real wages: +1.8% YoY (vs. +2.1% (revised up from 1.7%) and +1.7%);

Agriculture: +8.5% YoY (vs. +1.4% the previous month). 

Local demand almost came to a full stop and there is little to prevent it from dipping below the waterline in 3Q14.

Consumer spending is firmly on the downward trend. The pace of annual growth in real retail sales is hovering near 4.5-year lows (1.1% in July) restrained by i) lacklustre incomes growth and ii) tightening access to consumer credit. There is no short-term cure for any of the two and, moreover, elevated and rising food inflation will continue to eat into households’ spending power. Component-wise, spending on big ticket items, such as car sales (-23% YoY) was particularly affected.

Investment back in the red, companies are pressured to save/deleverage. After a one-month respite, investment slid again to contraction – not a surprise given the unfavourable base effect, elevated policy uncertainty (both geopolitical and domestic) and tightening borrowing conditions (again on external and local markets). Moderation in budget spending growth last month (2.1% vs. 10.1% YoY) must have also been unhelpful for budget-funded investments. It is worth noting that housing construction continues apace (completions up 38.5% YoY) as homebuilders have likely accelerated the construction of apartments pre-sold in 1H14.

Net exports cushion impact on economy. On a positive note, agriculture gathered momentum and added 8.5% YoY in July, which together with decent IP numbers suggest net exports will continue to cushion the impact from slowing demand. That said, it is unlikely to be strong enough to keep GDP growth from dipping under water in 2H14, particularly in light of the unfavourable statistical base effect.

Daria Isakova, Vladimir Kolychev
VTB Capital analyst

Russia, Rosstat, GDP

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