Russian revised macro data suggests continued recovery in May, but incomes slip

Russian revised macro data suggests continued recovery in May, but incomes slip
Industry and retail is up in Russia, but incomes put in a surprise fall
By bne IntelliNews June 21, 2018

Russia's economic recovery continued in May based on base sector data provided by Rosstat on June 20, which showed stable demand with retail sales growth and strong industry growth on the output side.

However, recent sharp upward revision of industrial production series that surprised analysts was coupled with an unexpected dive in real income in May that caught analysts off guard.

Retail trade expanded by 2.4%, indicating stable consumer demand that remains Russia's principal growth engine. Unemployment also fell to a new post-Soviet record-low of 4.7%. 

But that made the stumble of real income, which dropped by 9% month-on-month in May and remained almost flat year-on-year inching up by 0.3%, an unexpected sharp decline from 4.4-5.7% y/y growth rate seen in previous months. Some analysts put the result down to a high base effect and say the fall is temporary.

On the output side, industrial output surged by 3.7% year-on-year, surprising the market that expected 0.8% y/y increase according to a Reuters survey. The sharp increase is due to revision of industrial output data announced by Rosstat this week, under which manufacturing output jumped to 5.6% y/y in May.

The retroactive revision surprised the analysts, who attributed to possible addition of previously classified military and defence manufacturing numbers, and doubted reliability of Rosstat reporting.

Nevertheless, the Ministry of Economic Development already said on June 20 that with the new dataset it could increase the GDP growth estimate for 2017 from 1.5% to 2%, and for the first quarter of 2018 from current 1.3% to 1.5%.

Commenting on May macro date, VTB Capital on June 20 also highlighted "a significant uptick in construction activity in May, which at 5.6% y/y is the highest growth rate in the last five years," but suggested investors wait for next month to see "whether this is the long-awaited improvement in construction activity or simply a one-off."

As for the revised manufacturing data, VTB noted significant changes in 16 (out of 23) industries of manufacturing, with the greatest contribution coming on the back of the more rapid and robust output growth in construction materials, basic metals, metal products, machinery & equipment and transport equipment.