August Data Show Resilient Growth

Retail Sales grew at their fastest rate in three months as the Russian economy showed tentative signs of improvement in August.

While the 1.4% rate is far below long-term trend rates it is a big improvement on June’s dire 0.7%. The figure is also far stronger than most economists had expected, given that they expected retail sales to go negative in the second half of 2014.

Meanwhile forward-looking indicators posted their best levels of 2014. Real disposable Incomes grew at 3.4% in August which is faster than July’s 2.3% and took the year to date gain to 0.7%. Earlier months of contraction is the main reason for the current slowdown in retail sales, and thus August’s fast acceleration is extremely encouraging as we begin to enter the hugely important Christmas season for retail sales. The other forward looking indicator which is related to the “real” aspect of data is inflation.

In Russia, the PPI is a forward leading indicator of CPI, because the ruble drives a lot of firm’s input prices. PPI not only fell dramatically in August but fell well below CPI at 5.4% indicating that inflation will subside in the coming months allowing even larger gains for disposable incomes and thus ultimately retail sales.

The seasonally important agricultural sector once again registered a strong gain in August growing by 4.6%. In August agriculture makes up around 10% of GDP, thus this should add around 0.46% to the GDP growth rate for this month. As reported yesterday, Russia has posted extremely strong grain output this summer. 

Investment in fixed capital remained at its yearly level of -2.7% and thus was a disappointment. It is not expected to change much until demand picks up (which we are only just starting to see signs of). On a more structural point of view, the figures should be extremely strong from 2015 onwards as the major work on the 70 billion dollar Power of Siberia pipeline gets underway.

Industrial Production did not grow in August as was reported on yesterday, paid services grew at their yearly rate of 1% and the trade data has not yet been released for August. Trade data, however, was released for July and points to a potential GDP upward revision for the month. Revised data for July's retail sales which grew at 1.2% instead of the originally reported 1.1%, make a higher print to GDP  even more likely. 

Overall, the data points to an economy that is weakly growing and which probably bottomed out in June. Increasing real wages and slowing inflation point to a sustainable recovery.