Page 12 - RUSRptOct18

The trend continued in the last weeks of the summer with the index falling by 11% y/y to the low to mid 400s – its lowest level since the inception of the index in 2014. In previous years the index showed a dramatic spike as the September 1 deadline comes up and the index us usually around the 500 mark.
Income recovery remains fickle but has been in positive territory all year.
The real incomes of Russians in August decreased for the first time since early 2018, falling by 0.7% in August m/m compared to July, Rosstat reported on September 20. In annual terms incomes were up 0.9% over August 2017, slowing considerably from previous months earlier this year. But this slowdown in income growth is not enough by itself to account for the fall in retail turnover and it is more than off set by the fast expansion in retail borrowing.
Russian retail loan book growth accelerated in August to 20.7% y/y, from 19.7% in July. Further growth is likely to be supported by expectations of an increase in the interest rate on the back of the CBR’s more hawkish comments in June, seasonal demand and the tighter regulations on consumer loans. Indeed consumer borrowing is growing so fast that the Central Bank of Russia (CBR) is once again worried about a consumer loan bubble appearing and will introduce tighter restrictions on consumer loans in September to cool the business off.
The main explanation of the slow down in the Watcom index is the ongoing migration of Russia’s retail business to the internet. E-commerce is currently expanding by about 20% per year, which is ten-times the pace of the real economy.
This migration is also showing up in the PMI industrial activity index where manufacturing PMI index was 48.9 in August, or just below the no-change 50 mark. However, the services PMI continues to expand robustly and rose to a three month high the same month of 53.3. Russia is increasingly becoming a services economy and the population’s shopping habits are changing where they order more and more online.
12 RUSSIA Country Report October 2018 www.intellinews.com