Page 27 - RusRPTNov18

3.0 Macro Economy 3.1 Macroeconomic overview
Russia's economic growth slowed in September according to the base sector data released by the RosStat statistics service on October 19, both on the output and demand side.
After a report on slowing industrial output growth in September , transportation turnover also indicated weaker activity with transportation growth decelerating to 1.9% year-on-year from 2.6% in August. Agricultural output was down 6% y/y after 11.3% drop in August. Construction activity, however, inched up by 0.1% y/y in the reporting month following a decline of 0.8% in August
On the demand side, retail sales growth posted 2.2% year-on-year in September, down from 2.8% y/y seen in August, bringing growth to 2.6% y/y in January-September overall. The retail trade slowdown coincided with a 1.5% y/y decline in real disposable income, the second consecutive month real disposable income shrinks (-0.9% y/y in August) after seven consecutive months of growth.
"All in all, these results imply slower GDP and basic sector growth in 3Q18 than in 2Q18," Sberbank CIB commented on October 18, still expecting the economic indicators to improve in 4Q18 and maintaining the 1.8% GDP growth forecast for 2018.
VTB Capital attributed the slowdown of retail trade in September to the growth in food sales slowing to zero, while backed by consumer electronics non-food sales continue to soar, attributed to household concerns about the potential pass-through effect from both FX weakening and the VAT rate hike. Going forward, food sales are expected to pick up in the end of 2018, VTB believes.
Incomes, however, are unlikely to recover fast. "We think that this data marks the end of the era of steady real wage expansion," VTB argues, expecting the growth in real wages to slow down from October on the back of both accelerating inflation and the high base effect in wages.
Analysts surveyed by Vedomosti daily on real disposable income dive also believe that income growth will continue to slow down and will amount to 1%-2% by the end of 2018, considerably lower than the 3.4% growth forecasted by the Ministry of Economic Development.
World Cup added more growth than expected. Preparation for hosting the World Cup from 2013-18 added RUB952bn ($14.5bn), or 1%, to Russia’s GDP. The effect was 10% greater than planned. While it's certainly significant that preparations for the World Cup and the festivities around it this year added nearly 1% to GDP over 5 years, the glaring question is whether that growth was actually "healthy" or sustainable. The answer is unclear, particularly since contract cost overruns exploited by regional and local businesses and politicians certainly didn't somehow produce better infrastructure for tourism. Realistically, tourism to Russia has to grow and, despite attempts to work out an easier visa regime, that's going to largely remain affected by the reputational impacts of Russia's politics at home and abroad. More than likely, the World Cup provided an artificial stimulus, now to be replaced in the relevant cities by fights over May decree spending and investments. The construction of infrastructure and tournament operating costs had the greatest effect on GDP, constituting RUB751bn ($11.5bn), or 79% of the total
27 RUSSIA Country Report November 2018 www.intellinews.com