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Internal rebalancing strengthens, supporting RUB


The federal customs service has published its first estimate for September non-CIS imports. The headline figure came in at USD 20.6bn, with the YoY drop of 10.7% (after the -11.4% YoY in August) meaning that it was below the waterline for the fourth month in a row.

In separate news, Rosstat reported that Russian consumer confidence deteriorated to -7% in 3Q14, from -6% in 2Q14.

On the sub-index level, the index of the expected economic changes in the short term decreased to -7% during the last quarter (from -6% in the previous three months). Also, the index of past economic changes was down to -7% (from -6%), the index of expected changes in the level of incomes edged down to -4% (from -2%), the index of past changes to the level of incomes ticked up to -4% (from -6%) and the index of favourable timing to make big purchases stood flat at -16%, the strongest level since 3Q08.

A weaker domestic currency, the recently imposed trade restrictions and cooling demand all weighed on imports of both consumer and investment goods, spurring the CA rebalancing. Thus, the pace of the decline in imports of investment goods intensified to 9.8% YoY, the strongest since late 2009, while the drop in consumer imports eased somewhat in September to -5.2% YoY, partly due to better gains across clothes and footwear items.

In the meantime, the latest Rosstat survey showed a worsening in consumer confidence in August (while it is reported as 3Q14, it stands for August only). It chimes with our understanding that consumers are suffering and shows that the increasing dichotomy between actual consumer purchases and their confidence level, as observed during 1H14, is unsustainable.

Hence, consumption fundamentals remain challenging, with sluggish income and retail lending growth. In anticipation of some relief on the car market (and, consequently, in general consumption growth) due to the new cash-for-clunkers initiative, we would stay on the conservative side and not expect any tangible upswing in the underlying trend of discretionary consumer spending in the near term.

All in all, a firm downward trend in imports (particularly on the back of meagre consumption) is set to stabilise RUB and prevent additional weakness, unless another external shock occurs (a further escalation in Ukraine and/or collapse in oil prices).

Daria Isakova, Vladimir Kolychev
VTB Capital analyst

import, ruble

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