Page 43 - RusRPTNov19

growth in August . The output of basic sectors of the economy (which account for roughly 60% of GDP) rose by 2.2% y/y in August, decelerating from the 2.5% y/y growth in the previous month. The deceleration was mostly attributable to slower growth in agriculture, which added just 2.8% y o-y in August, after 5.9% y/y growth in July (the pickup in July could be attributable to the earlier start of the harvest and may be just a one-off, see our previous report "Growth Supported by Strong Agriculture, Wholesale Trade" for more details) and slower growth in wholesale trade (up 1.4% y o y versus 3.8% growth in July). Although other sectors except retail showed slightly better y/y dynamics, this did not outweigh the deceleration in agriculture (the importance of, which increases in 3Q19 due to harvest season) and wholesale trade.
Consumer demand remains sluggish . Despite stable dynamics in real wage growth (up by 3% y/y in July and August), growth in retail trade continued to decelerate. It rose by just 0.8% y/y in August, down from the 1.1% the month before (up by 1.5% in 8m19). Slower retail lending and still weak dynamics of real disposable income, which was down 0.2% y/y in 2Q19 (the figures are only published quarterly) are likely the main reasons behind the deceleration.
Economic growth in 3Q19 will likely be higher than in 2Q19, but just a bit. Basic sector output rose 2.3% in July-August, accelerating from 1.7% in 2Q19, possibly indicating a pickup in GDP growth in 3Q19. In the coming months, we expect higher budget expenditures to push growth even higher (in particular in the construction sector and manufacturing of construction materials). Budget spending already rose in August (up 20% y/y), including on some infrastructure projects (such as roads and transportation). We note the risk, however, that some budgeted spending could be postponed until next year.
43 RUSSIA Country Report November 2019 www.intellinews.o