Page 4 - RusRPTAug19

1.0 Executive summary
Growth in June remains lackluster and well below potential. Although Russian GDP grew by over 2% last year, the pace of growth slowed to just 0.5% in the first quarter of this year and new data for June showed manufacturing growth picked up in the second quarter to 3%, while other sectors of the economy showed virtually no growth gains at all.
There was no on-year growth in construction in the first half, and growth in services was negligible. Growth in both goods transport and retail sales slowed in the second quarter to under 2%. Especailly alarming was the volume of services to households contracted by well over 1% from 1H18, which in the past few years has been growing strongly.
The rise in real wages was also slower in the first half than in the same period last year. In June, real wages were 2.3% higher than in June 2018 but the real disposable incomes of Russians in 1H19 contracted by more than 1% y/y. Real incomes have now been contracting for five and half years in a row.
Households have turned to borrowing to make ends meet and maintain the quality of life. Credit has helped fuel growth in retail sales and the Watcom shopping index shows its first growth in nearly four years in the summer months. The household credit stock was up 23% y/y in June, but consumer credit has aroused concerns about excessive indebtedness in the Central Bank of Russia (CBR).
Part of Russia’s sluggish economic performance reflects a slowdown in the global economy, which, in turn, reflects the contraction in Russian exports. The latest balance-of-payments figures show that the value of exports and imports contracted in January-June by about 3% y/y.
Exports, in particular, took a nose-dive in the second quarter although Russia is still running a very healthy trade and current account surplus.
Economic growth is expected to revive a bit in the second half of this year as the effects from planned public sector spending begin to kick in but only 20% of the planned spending was put in pace in the first half so the whole RUB27 trillion programme is off to a very slow start.
The economy is stagnating but the government’s position remains robust and public finances are in rude health. The Russian Federation budget is in surplus. In January-June, budget revenue increased by 10% y/y in nominal terms. The growth rate of revenues was quite good in that the surge in oil and gas tax revenue, which has risen sharply, is behind us. Oil and gas are playing and ever diminishing role in Russia’s tax take.
Consumption remains the main driver of the economy while the other two big drivers – construction and investment – are both essentially flat.
Fixed investments recovered for about two years after their 2015 collapse, but last year growth flattened. Even with some growth in the first quarter of this year, the very weak investment performance in the final months of 2018 meant investments in 1Q19 were lower than in 1Q18, which was the first on-year drop in three years. Investments were also a few per cent lower than in 2014.
4 RUSSIA Country Report August 2019 www.intellinews.com