Page 27 - RusRPTOct19

the end failed to appear. Inflation started this year at over 5% — above the CBR’s target rate of 4% — but has been falling again throughout the first half of this year.
At the federal budget meetings this week Economy Minister Maxim Oreshkin announced that his ministry had reduced its inflation forecast for the second time in one month to end this year at 3.6% and 3% in 2020. This is less than the CBR’s own 4% to 4.5% estimate for the full year.
Inflationary pressure was historically muted in September, with rates of both input price and output charge inflation easing. A more favourable ruble exchange rate reportedly partly stymied increases in cost. Output charges, however, rose only fractionally due to greater competition, reports Markit.
Just where inflation is going is the subject of a debate currently raging amongst the liberal faction. At issue is exactly what impact the release of large amounts of spending that come with the Kremlin’s RUB27 trillion 12 national projects programme will have, coupled with the rapid growth in consumer credits that the population have turned to this year in lieu of rising real income. However, the low levels of activity amongst the manufacturers suggest inflation will come out on the lower side towards the Ministry of Economy’s estimates than the CBR’s estimates at the moment.
Markit’s panellists reported that new orders suddenly slumped in September and demand was weak so there were difficulties gaining new clients, following much healthier demand in previous months.
Behind the slow growth in manufacturing is a stagnation in real income growth, which means consumption is playing a muted role in driving economic growth. What consumer spending there is at the moment is largely driven by credits. However, falling inflation will lift real incomes somewhat. The recent falls in inflation have already had a positive effect.
Real disposable income declined 0.2% y/y in 2Q19, although this is still better than the 2.5% y/y decline in 1Q19. All in all, real disposable income was down 1.3% y/y in the first half of this year.
What improvement there was in disposable income can largely be ascribed to the fall in inflation as well as stronger growth of nominal unadjusted wages. Nominal wages rose 7.4% y/y in 2Q19, accelerating from 6.5% y/y in 1Q19 and up 7% y/y in the first half of this year – well ahead of inflation.
The steep decrease in total new orders was also reflected in a sharp fall in foreign client demand, reports Markit. The drop in new export orders was the quickest for three years and partly stemmed from greater competition for clients.
Despite the bump in the road panellists remain optimistic overall although there was a lower degree of confidence towards output over the coming 12 months in September, reports Markit. The optimism took a hit from the poor September results with positive sentiment dropping to its lowest since the end of 2017, reports Markit.
Finally, lower production led to a fall in purchasing. The solid decrease was also reflected in a sharp decrease in pre-production inventories. Lower new order volumes also resulted in a decline in stocks of finished goods.
27 RUSSIA Country Report October 2019 ww.intellinews.com