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Rosbank- Eco Analysis: Russia: Domestic demand less gloomy, but not out of the wood, Apr 18, 2013.

Following the robust IP report early in the week, today's statistics on domestic demand indicators added mixed signals. Consumer demand was upgraded to less gloomy levels, while capital spending continued to stagnate. Despite some recovery in economic activity at the end of March, growth clearly remains below potential hence the argument for a more accommodative policy stance should be intact and still on the CBR's agenda. At the same time, headline CPI is still elevated and perhaps encouraging the CBR to refrain from cutting base rates just now.

(To view the full report please click here:

http://reports.aiidatapro.com/brokers/RosbankEN/econom_180413_eng.pdf)

Growth in household spending revised on the upside

Consumer demand was the most surprising part of the report, with retail sales accelerating to 4.4% yoy (CNS 2.6%, SG 2.4%), as disappointing data for former months were upgraded . Overall, the sequential growth rate stabilised at 4.0% (3m SAAR) thanks to the supportive deceleration in consumer prices and still-robust consumer confidence.

Despite colder weather conditions weighing on hiring activity in the construction and agricultural sectors, the unemployment rate remained unchanged in March at 5.2% (sa). However, tight labour market conditions were unable to boost wages in the private sector: according to detailed data published by Rosstat, with a one-month lag, wages in the private sector continued on their downward path, decelerating to 9.5% yoy in nominal terms. Wages of civil servants remained under pressure from the government's fading stimulus (slowing down to 14.7% yoy from more than 22.0% at the end of the previous year).

Overall, consumer activity is stabilising (albeit at relatively low levels) and this is in line with our expectations. Easing inflation pressure along with tight labour markets should put a floor on the downside, and a rapid rebound in the near term is fairly unlikely given slowing credit and wage growth.

Capital spending dropped on unfavourable weather conditions and weak investment activity

Fixed capital investment dropped in March to -0.8% yoy decelerating gradually from 0.3% in February and 1.1% in January. Although some of the March weakness could be explained by colder weather that weighed on construction activity, the overall trend remains stagnation and an acceleration can only be expected in late H2 13, after borrowing conditions improve on a softer monetary policy stance.

Better data eases pressure on the CBR

Following disappointing February results, depressed by the unfortunate calendar effect, March data softened expectations of the rapidly approaching recession. That said, the pace of economic activity remained below potential and is unlikely to recover in the near term given persistent headwinds. Thus, the argument for a more accommodative policy stance remains intact. However, less appalling data and a temporary pick-up in weekly CPI prints makes us more convinced that changes to non-standard refinancing facilities (medium-term 312-P) are more likely than base rate (REPO) cuts in May-June.

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Publication:Russian Banks and Brokers Reports
Date:Apr 18, 2013
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