Yesterday Rosstat published its monthly statistical report for December.
December saw both demand and output indicators on a stronger note. Amid extreme FX volatility, households fled from RUB into durables, real estate and hard currency, while companies continued to slash capex. On the supply side, a bunch of temporary factors added to the positive impulse from military and pipeline infrastructure spending. Looking ahead, we expect a significant decline in activity, as temporary drivers fall out, while military spending and pipeline construction are unlikely to offset the negative spillover from a sharp contraction in domestic demand.
Flight from RUB spurs demand for durables... Retail sales saw a solid 5.3% YoY gain in December (vs. 1.7% YoY 3mmva) with non-food spending surging to 10.5% YoY. The sequential pace of non-food retail sales was an eye-opening 90% (SAAR), the highest on the record. This chimes well with the recent banking data, which saw a significant outflow of retail deposits in December (up to RUB 800bn SA, we estimate) as households hurried to purchase imported goods and hard currency amid extreme FX volatility. On a related note, the panic spike in durable consumer spending was likely the main reason behind the more front-loaded path of FX pass-through into core inflation – in December, the run rate (MoM SAAR) spiked to 39.4%.
… but fundamentals point to a sharp reversal. December, however, is likely to prove the last positive month for the consumer sector, as shrinking disposable income is to enforce significant cutbacks in spending. The persistent slowdown in nominal wages growth (6.1% YoY) despite rising inflation is fairly revealing in this regards. Subdued nominal wages growth (i.e. a sharp decline in real terms) could well contain the second-round inflationary effect from recent RUB depreciation after the FX shock is fully absorbed in the price levels (likely by March).
Homebuilders and gas pipe bright spots, private sector slashes capex. The decline in FAI moderated in December (-2.4% YoY). Homebuilders enjoyed another round of the devaluation-spurred spike in sales (predominantly on pre-financed basis) consequently spurring construction activity and the demand for building materials. Pipeline infrastructure investment also accelerated, as suggested by an upsurge in pipe production. The mix of contracting FAI on the headline level, and rising housing and infrastructure investment, suggests that the private sector continues to slash capex. This trend is likely to accelerate sharply given the severe deleveraging pressure amid elevated policy uncertainty.