Russian retail and consumption continue cautious recovery

In Russia, consumption resumed a recovery path in October, but this came at the expense of a lower savings rate given increased underemployment, says ING Think. Retail trade growth showed a drop of just 2,4% year on year in October, which was close to expectations and better than September’s 3% decrease. Meanwhile, mobility and transaction indicators have been pointing at the negative impact of the pandemic resurgence.

According to ING, the core negative impact is likely to be focused on the services segment rather than food and non-food retail, as targeted limitations impacted primarily dining, entertainment and recreation venues. Besides, the local consumption trend remains affected by the outward tourism factor. Thus, the end of the tourist season could bring an increase in domestic spending flows in October. Positive consumption data was also supported by a decline in the savings rate. According to banking statistics, retail deposit growth retreated to 6,3% year on year in October from 7% in the previous four months.

While October data on household incomes is not yet available, salaries are likely to have been supported by a 3% increase in budget sector salaries. In September, salary growth exceeded expectations with a year-on-year increase of 2,2% in real terms due to improvements across various sectors and social benefits. Unemployment was stable in October compared to the previous month, although the employment rate is currently down 2,5% year on year preventing material improvement in the near term.

The corporate side seems to remain stable with construction volumes flat and corporate lending picking up. Lending to non-financial corporates increased to 6,7% year on year in October. Such a pickup in corporate lending may signify some increase in corporate investment demand after a fall in the second quarter of 2020.

Overall, October activity data suggests that the second wave of COVID-19 has not had a material impact on the recovery path so far making a cut in the key rate unlikely in the near term. However, increased reliance of consumer recovery on leverage and savings, below-potential employment, a generally cautious mood at the household level and repositioning in the fiscal policy from infrastructure investments towards social support may hinder further recovery. Thus, ING analysts reiterate their expectations of modest economic growth for 2021.