Russia: June Activity Not Too Bad

Russian retail growth stabilized at 1.4% YoY in June, which is a small positive surprise, adding to the strong 3.3% YoY increase in industrial production. Both seem to be related to the budget policy and may see some further support in 2H19. It's not a game-changer for rate cuts, as the reasons for slowing inflation have little to do with demand.

Better-than-expected household consumption despite a slowdown in retail lending growth

In June, Russian retail sales remained stable at a low level of 1.4% year on year seen in May. This is still better than the 1.0% we and the market were expecting. This is the second time in a row consumption growth exceeds expectations, contradicting our initial view, that the positive results in May positive result were a one-off event. There are several observations here:

  • Initially, we believed the May increase in the real salaries (recently revised to 1.6% YoY) as concentrated around financial and commodity extraction sectors, the recent update suggests that a number of state-driven sectors, including healthcare, also posted acceleration in the salary growth, and this may have also contributed to the acceleration in the June real salary growth of 2.3% YoY, which is slightly below our 2.6% YoY expectations but still a positive result;
  • Unemployment declined to an all-time low of 4.4% in June, which is also better than expectations;
  • Importantly, retail trade growth stabilized and outperformed expectations despite the deceleration in retail lending growth to 22.8% in June from 23.3% in May and 23.8% in April. Meanwhile, retail deposit growth (net of FX revaluation effect) accelerated to 7.3% YoY in June, an 11-month high, mainly due to FX deposits, possibly reflecting some improvement in the financial standing of the middle and higher-income households.

Still, we acknowledge household activity data for June is not yet a strong reason for optimism on consumption going forward, especially given the likely further slowdown in the retail lending growth. However, the scheduled increase in state-sector salaries in 2H19 and the recent strength in the ruble still provide hope that the consumer sentiment will at least stabilize, the growth in consumption (albeit slow) will continue. It also suggests that the 'weak consumer demand' argument in explaining the below-expected CPI growth (4.7% YoY as of June, could slow further to 4.6% YoY in July and 4.0% YoY by the year-end) is not as strong as it is believed by the market.

1 2
View single page >> |

The information does not constitute investment recommendation, and nor is it investment, legal or tax advice or an offer or solicitation to purchase or sell any financial instrument. more

How did you like this article? Let us know so we can better customize your reading experience. Users' ratings are only visible to themselves.

Comments

Leave a comment to automatically be entered into our contest to win a free Echo Show.