Page 7 - RusRPTNov21

Likewise The headline seasonally adjusted IHS Markit Russia Manufacturing PMI registered 51.6 in October, up from 49.8 in September, and signalled the first improvement in the health of the Russian manufacturing sector for five months.
“October PMI data signalled a renewed improvement in operating conditions across the Russian manufacturing sector. The overall rate of growth was the strongest since May, with faster expansions in output and new orders supporting the upturn. At the same time, employment expanded for the first time in five months amid greater production requirements,” Markit said in a press release.
Manufacturing – the backbone of the real sector – was up 4.6% y/y in September vs. 2.9% y/y in August. Electricity and gas supply was up 9.1% y/y in September vs. 6.8% y/y in August, and water and sewerage was up 10.7% y/y in September vs. 12.7% y/y in August.
Labour shortages significantly affected harvests, with harvests of grain and leguminous crops, potatoes, and vegetables down 12.7% y/y, 12.7% y/y and 3.5% y/y as of 1 October, respectively.
Demand for goods and services was strong, while cafes and restaurants felt the effects of COVID-19-related restrictions. Retail sales continued to improve, although they still came in below expectations. Social outlays fueled demand for goods, with retail sales up 5.6% y/y in September (vs. +5.3% y/y in August and +5.1% y/y in July) thanks primarily to the non-food segment (+8% y/y in September vs. +7.5% y/y in August).
A more robust economic backdrop led to higher incomes. The growth in real disposable incomes in 3Q21 surged to 8.1% y/y vs. 7.4% y/y in 2Q21 and -3.7% y/y in 1Q21. Real money incomes were mainly driven by the expansion in salaries and wages; entrepreneurial activity; and social outlays. While the recovery in corporate profits supported salaries and wages, budget spending boosted social expenditures. The unemployment rate improved further, falling to 4.3% SA in September vs. 4.4% SA in August.
Consumption was the key driver of the 2Q21 economic recovery and remains that in 3Q21, with August employment and retail trade above expectations ahead of the likely spike in September. We upgrade our 2021 GDP growth to 4.3%. Yet moderating lending, sluggish non-oil production, tight budget draft and Covid risks keep us at a cautious 2.0-2.5% for 2022.
On another positive note, investment growth was also strong at 12.8% y/y, adding a noticeable 2.6%age points to 2Q21's GDP growth of 10.5%.
Despite rate hikes, demand for retail loans was up 4.6% SA q/q in 3Q21
vs. 6.8% SA q/q in 2Q21 (+23.9% y/y in 3Q21 vs. +21.7% y/y in 2Q21). Loan demand, which was up 27% y/y in September, drove the growth in mortgages.
The bugbear remains high inflation. Russian inflation accelerated to a fresh five-year high of 7.4% y/y in September and, while this was mainly driven by a sharp increase in food inflation, the central bank is likely to continue its
7 RUSSIA Country Report November 2021 www.intellinews.com