News
LN: Positive – May IP grows 12.8% yoy (p2)
LV: Neutral – May PPI decelerates to 7.8% yoy (p2)
RU: Mixed – Sharper than expected decline in real disposable income at -7.0% yoy; May Production Capacity Investment increasing 7.4% yoy (p2)
Today’s Events
CZ: CZK 8bn 2014 GB auction / HU: CBank Quarterly inflation report / KZ: KZT 12bn 2012 GB auction / PL: May Retail Sales, May Unemployment rate/ RU: RUB 10bn 2021 and RUB 20bn 2017 OFZ auctions; CPI YTD
EEMEA Markets
Tuesday produced a mixed set of data in Russia. The positive is higher than expected investment growth, the negative a much sharper than expected decline in real disposable income. We are still waiting on detailed 1Q GDP data but monthly fixed investment data for 1Q suggests that in yoy terms fixed investment turned negative. Data released for May yesterday points to a better 2Q, with yoy fixed investment growth over April-May averaging 4.8% yoy, having posted a strong 7.7% yoy gain in May. Labor market and consumer-related data was weaker. Unemployment posted a 0.9pp decline over the past 12 months to reach 6.4% but the pace of decline in unemployment is beginning to ease slightly. Real disposable income continues to show contraction, slumping 7.0% yoy, the sharpest yoy decline in real wages since Aug-09, though April data was revised upwards. Real wage growth slowed to 2.6% yoy. Both indicators suggest another quarter of yoy contraction in private consumption in 2Q. Retail sales in real terms rose broadly in line with expectations at 5.5% yoy. In terms of economic activity Russia has lagged its peers since the crisis, with GDP at end-1Q still 3.1pp below its peak. 2Q is likely to prove another ‘average’ quarter. Looking ahead to the second half of the year, there is some scope for upside surprise however. A better harvest should help agriculture – note that last year saw agriculture take 0.4pp off GDP, despite accounting for only 3.4% of GDP. Elevated inflation has eroded consumer purchasing power but should ease in 2H, boosting real income growth. Lastly the impact of the social security hike pushed through in January should ease from here.
Gillian Edgeworth
UniCredit Research