Russia’s consumer demand unlikely to expand before Q3

Macro indicators of Russia are getting some relief from the easing volatility, appreciation of RUB and oil price rebound. Brent crude price has rebounded 55.6% y/y since January 2016, whereas RUB gained 25.4% against the US dollar, giving some relief to private consumption. Demand and output data for last month gives signs of stabilization. Macro indicators are likely to rebound in end of H2 2016, according to Danske Bank.

Russia’s industrial output declined 0.5% last month, as compared with the growth of 1% in the previous month. However, sa monthly data indicates that industrial output expanded positively in the beginning of 2016. Russia’s demand side continues to be weak due to low consumer sentiment and negative growth of real wage in spite of decelerating inflation.

Inflation slowed to 7.3% y/y in March 2016 as compared with 16.9% in the same period last year. Real wages contracted 3% y/y, a drag on retail sales. Real wages are stabilizing with the help of base effect. This shows that the demand side bottomed in the last quarter of 2015.

“Yet, given the current environment of a relatively low oil price, inflation risks and shrinking real income, we do not expect consumer demand to expand before Q3 16 at the earliest”, said Danske Bank.

The Russian economy is expected to contract 2.1% y/y this year assuming the average price of Brent remains at USD31/bl, added Danske Bank. With the average price of crude rebounding, there are risks on the upside to the projections. Russian economic growth will continue to be in negative territory in 2016, noted Danske Bank.