Russia Unemployment Falls to Lowest Since 2008, Lifts Demand

Russia’s unemployment rate plunged last month to match the lowest level since the global financial crisis roiled the economy in 2008 as companies raised spending to meet domestic demand.

The jobless rate dropped to 5.8 percent, the lowest since August 2008, from 6.5 percent in March, the Federal Statistics Service in Moscow said in an e-mailed report today. The median estimate of 13 economists in a Bloomberg survey was 6.4 percent. Fixed-capital investment jumped 7.8 percent from a year earlier, beating the 6.3 percent forecast.

President Vladimir Putin needs a stronger labor market to sustain consumer spending and balance shrinking sales to Russia’s biggest trading partners, the European Union and China. Putin, who was inaugurated for his third term in the Kremlin on May 7, pledged to raise salaries and pensions for the military in the run-up to the March 4 presidential election.

“Continuing double-digit growth in real wages and low unemployment probably assumes that consumers’ outlook remain relatively secured,” Dmitry Polevoy, chief economist for Russia at ING Groep NV (INGA) in Moscow, said in an e-mailed note.

The Micex Index (VTBMICX) of 30 stocks extended gains after the release and closed 2 percent higher at 1,298.00 in Moscow. The ruble was little changed against the dollar at 31.1725.

Wages, Retail

Rising salaries are helping companies such as OAO Magnit, Russia’s biggest food retailer by market value, which last week said net retail revenue surged 28 in April from a year earlier.

Real wages grew 10.4 percent last month from the same month of 2011 after a downwardly revised 9 percent increase in March, while retail sales grew 6.4 percent, the service said. Economists forecast an 11 percent advance in wages and a 7 percent increase in retail sales, according to the median estimates of two Bloomberg News surveys. Real disposable incomes grew 2.1 percent.

An increase in government spending on salaries of state employees such as the military and the police is helping spur wage growth and domestic demand, Julia Tsepliaeva, head of research at BNP Paribas SA (BNP) in Moscow, said in an e-mailed note. Retail sales will probably accelerate in the coming months on stronger incomes, she said.

Shrinking unemployment “promises inflation acceleration rather than output rise as final demand for domestic goods remains weak,” said Alexander Morozov, chief economist at HSBC in Moscow.

The central bank refrained from cutting interest rates for a fifth month in May, keeping the refinancing rate at 8 percent as it seeks to bring inflation in 2012 below last year’s record-low 6.1 percent. Bank Rossii targets holding inflation to between 5 percent and 6 percent this year and 4.5 percent and 5.5 percent in 2013.

‘Drivers of Growth’

Job gains and inflation at the lowest rate on record at 3.6 percent are bolstering purchasing power and helping shelter the economy from a slowdown in Europe. The economy grew 4.9 percent in the first quarter, beating economist forecasts and expanding at the fastest pace since the three months ended September 2011.

“The drivers of economic-growth are broadening, with the emphasis shifting from external sector to domestic sectors,” Vladimir Pantyushin, Barclays Capital (JNK)’s chief economist for Russia, said by phone. “The strength of domestic demand in Russia makes it less susceptible to external weaknesses.”

Capital investment rebounded in April from the slowest pace in 10 months in March, beating economist estimates.

“Empirical evidence suggests that it should be attributed to implementation of state projects and projects of state monopolies, while the private sector does not hurry up to boost its investment activity,” Morozov said.

Still, investment growth is likely to slow in the second quarter on “strictly negative” base effect, Tsepliaeva said.

Industrial output increased 1.3 percent in April, the weakest pace since it started rising in November 2009, the statistics service said on May 17. The country’s new car and light commercial vehicle sales have stagnated, growing 14 percent in April and 13 percent in March, down from monthly increases of as much as 80 percent last year.

To contact the reporter on this story: Milda Seputyte in Vilnius at mseputyte@bloomberg.net

To contact the editor responsible for this story: Balazs Penz at bpenz@bloomberg.net

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