Page 39 - RusRPTJun19

probably pick up a little over the coming months as public sector salaries are raised and labour market conditions continue to tighten, Capital Economics said in a note. “This should mean that GDP growth holds up better than the consensus anticipates over the rest of 2019,” the analysts said.
Russian wage growth has slowed markedly over the past year. After growing by 12.5% y/y in Q1 2018, nominal wages rose by just 5.5% y/y in Q1 2019. A rise in inflation (driven largely by a VAT hike) has meant that the slowdown in real wage growth has been even more pronounced, weakening from 10.1% y/y to 0.4% y/y. This has been the main factor contributing to slower consumer spending growth.
The softness of wage growth has been concentrated in two sectors – health and education. Wage growth in the health sector slowed by 21.3%pp over this period (from 32.2% y/y to 10.8% y/y). And wage growth in education weakened from 17.2% y/y to 6.8% y/y. We estimate that these sectors have accounted for 55% of the overall slowdown in headline wage growth.
It appears that tighter fiscal policy is to blame. In the run-up to the presidential election in March 2018, there was a sharp rise in salaries in both sectors (which are dominated by public sector workers and account for 20% of total employment) as President Putin sought to shore up support. Wages were hiked in a last ditch attempt to meet targets set out by Putin in 2012. After the election, salaries in education and health increased at a slower pace as the government offered less generous pay rises.
39 RUSSIA Country Report June 2019 www.intellinews.com