Russian Consumer Rot Worsens as Wages Decline More Than Forecast

(Bloomberg – bloomberg.com – Anna Andrianova – September 17, 2015)

A slump in Russian consumption showed no letup last month while a drop in investment stretched into the longest in two decades, highlighting the toll on the economy from lower oil prices and the latest wave of ruble depreciation.

Real wages declined 9.8 percent from a year earlier after a 9.2 percent drop in July, the Federal Statistics Service in Moscow said Thursday. Retail sales tumbled 9.1 percent on an annual basis, matching a revised 9.1 percent plunge a month earlier. Economists surveyed by Bloomberg forecast decreases of 9 percent and 8.9 percent. Fixed-capital investment shrank 6.8 percent, dropping for a 20th month. That’s the longest stretch of declines since at least 1995, when Bloomberg started compiling the data.

Caught between the twin challenges of reeling consumption and companies choked by sanctions and high borrowing costs, Russia is bracing for the longest recession of President Vladimir Putin’s 15 years in power. The central bank kept its key interest rate unchanged last week after five cuts this year following the ruble’s tumble stoked price growth.

“The underlying trend in economic activity remains weak, with retail sales and investment staying deep in contraction territory amid still relatively tight monetary policy,” Piotr Matys, a foreign-exchange strategist at Rabobank in London, said by e-mail before the data release.

The ruble has lost almost 42 percent against the dollar in the past 12 months, the worst performer worldwide among currencies tracked by Bloomberg. It traded 0.8 percent weaker at 65.8660 versus the dollar as of 4:03 p.m. in Moscow.

Deeper Recession

The ruble’s depreciation added about 7 percentage points to inflation in August, while a contraction in demand reduced price growth by about 1 percentage point, according to the central bank. Annual inflation, which accelerated to 15.8 percent in August, will subside to 7 percent next September, it estimates. The economy may shrink as much as 4.4 percent in 2015, the Bank of Russia said last week.

August’s decline in investment was less than the median of 18 forecasts for a 9 percent drop and compares with an 8.5 percent slide in July. Disposable incomes fell 4.9 percent after a drop of 2 percent a month earlier. The unemployment rate remained at 5.3 percent.

“Russian private consumers are hurting as their purchasing power is miserably low,” Vladimir Miklashevsky, a strategist at Danske Bank A/S in Helsinki, said before the release. “The third quarter may turn out to be the bottom for the ongoing recession.”

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