November 20, 2012 / 12:35 PM / in 5 years

UPDATE 2-Weak retail sales show Russian slowdown deepening

* Retail sales growth slows to 3.8 pct in Oct from 4.4 pct in Sept

* Capital investment up 4.9 pct, compared to a 1.3 pct fall in Sept

* Nominal wages up 12.1 pct, real wages up 5.2 pct

* Jobless rate ticks up to 5.3 pct (Adds analysts’ comments, context)

By Jason Bush

MOSCOW, Nov 20 (Reuters) - Slower retail sales growth in Russia in October has added to concerns the economy is feeling the global economic chill, as previously free-spending domestic consumers grow more cautious.

Federal Statistics Service data on Tuesday showed year-on-year growth in retail sales fell last month to 3.8 percent from 4.4 percent in September, significantly below the 4.3 percent forecast in a Reuters poll last month.

That disappointed economists, despite a surprise rebound in investment reported for the same month.

“My overall take on the numbers is that they came less than expected, showing that the annual growth of the economy keeps decelerating,” HSBC’s chief Russia economist Alexander Morozov said.

Growth in household consumption has declined sharply since the first half the year, when retail sales grew by an impressive 7.3 percent compared with a year earlier.

The rapid rise in consumption had enabled Russia to shrug off the impact of a slowing international economy and post relatively strong economic growth of 4.5 percent in the first half of 2012. But growth in gross domestic product fell to 2.9 percent in the third quarter as the consumption boom lost steam. [ID: nL5E8MCA6B]

“Consumer demand, which has been the key driver of demand over the past few years, continues to lose momentum,” wrote Liza Ermolenko, an analyst at London consultancy Capital Economics.

“The recent pick-up in inflation, on the back of accelerating food inflation and utility tariffs hikes, appears to be the main reason for the weakness of consumer spending.”

Consumer price inflation reached a post-Soviet low of 3.6 percent in April and May, but had risen to 6.5 percent in October following a poor harvest.


In contrast to the sluggish growth in retail sales, capital investment posted a recovery in October, rising by 4.9 percent. That compares with a 1.3 percent decline in September and the 0.8 percent fall forecast by analysts.

The investment data is volatile, however, making it harder to predict and interpret.

Analysts had conflicting explanations for the October rebound, but tended towards the view that it resulted from seasonal factors and statistical quirks, and did not signal a genuine improvement in corporate sentiment.

“We consider October’s spike in investment as generally unsustainable for the coming quarters,” BNP Paribas economist Julia Tsepliaeva wrote in a note.

Data on wages and unemployment, also released by the Statistics Service on Tuesday, presented a mixed picture, but broadly confirmed the view that Russian consumers are feeling the pinch.

Nominal wage growth accelerated slightly to 12.1 percent year-on-year in October, up from 11.6 percent in September, with real wage growth rising to 5.2 percent in October from 4.7 percent the previous month.

However, the upward trend reflected a downward revision in the Service’s estimates for wage growth in September. Data released last month had previously estimated nominal wage growth at 13.6 percent in September, with real wages up 6.6 percent.

Despite the slight pick-up in October, real wage growth has halved since the first half of the year, when real wages were growing in double digits, helped by low inflation and election-related pay rises.

“Public sector wages are slowing because most wage hikes the public sector sector have been implemented in the first half of the year,” said Vladimir Kolychev, economist at Rosbank.

“Wages growth in the private sector is also slowing, which may be the result of lower commodity prices and weaker profit margins.”

Unemployment rose to 5.3 percent of the workforce in October, up from 5.2 percent in September and the first rise since January, although the jobless rate remains low by historical standards.

Additional reporting by Maya Dyakina and Elena Fabrichnaya; Editing by Catherine Evans

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