Russia’s Consumer Demand Eases as Incomes Unexpectedly Drop

Russian consumer spending decelerated in May, with disposable incomes unexpectedly shrinking for the first time since October 2011, adding to evidence the $2 trillion economy is stalling.

Real disposable incomes declined 1.3 percent from a year earlier after a revised 7.5 percent gain in April, the Federal Statistics Service in Moscow said today by e-mail. The median estimate of nine economists in a Bloomberg survey was for a 6.5 percent increase. Retail sales rose 2.9 percent from a year earlier, missing the median estimate of 3.6 percent and compared with a 4.1 percent increase in April.

The deteriorating outlook underscores the risk that the world’s biggest energy exporter will struggle to overcome its steepest slowdown since a contraction ended in 2009. Unemployment near a record low has bolstered household finances and confidence, making Russia more dependent on domestic demand as a European recession sapped demand for its exports.

“The moving force behind growth, slow but growth nonetheless, is consumption,” Economy Minister Andrei Belousov told reporters in St. Petersburg today, adding that gross domestic product expanded an average of about 2 percent from a year earlier in April-May, from 1.6 percent in the first quarter. “We can say with certainty that we are seeing some acceleration in GDP growth in the second quarter.”

Micex, Ruble

The Micex Index sank for a second day, losing 1.5 percent to 1,302.61 by 6:11 p.m. in Moscow. Russia’s stocks have the cheapest valuations among 21 emerging markets tracked by Bloomberg. The ruble weakened for a fourth month against the dollar in May, the longest stretch of monthly declines in three years, according to data compiled by Bloomberg. The Russian currency tumbled to its weakest level in 20 months today.

The government has remained split over policies to right the course of the economy, with the International Monetary Fund warning June 18 against the danger of stoking inflation with fiscal stimulus. Finance Minister Anton Siluanov said last week that a weaker ruble may be used to revive growth.

Gross domestic product expanded 1.8 percent in the first five months from a year earlier, Belousov said in St. Petersburg today. That’s below the 5 percent medium-target growth set by Prime Minister Dmitry Medvedev. The IMF cut its economic growth forecast for Russia, predicting GDP will expand 2.5 percent this year and 3.25 percent in 2014. The Economy Ministry projects 2.4 percent growth this year and 3.7 percent in 2014.

Rates Held

Policy makers kept their main rates unchanged June 10 for a ninth month as consumer-price growth accelerated to 7.4 percent in May, more than a percentage point above the central bank’s target range of 5 percent to 6 percent for this year.

May numbers were also affected by the month having fewer working days in May compared with a year ago, said Vladimir Osakovskiy, chief economist for Russia at Bank of America Corp. in Moscow and the most accurate forecaster of Russian retail sales and investment.

Fixed-capital investment unexpectedly grew 0.4 percent in May, surprising analysts who expected a 1.2 percent decrease. Unemployment fell to 5.2 percent in May from 5.6 percent in April. Economists polled by Bloomberg projected the jobless rate at 5.4 percent.

“Investment demand is weak, pulling down economic growth,” Julia Tsepliaeva, head of research for BNP Paribas SA in Moscow, said by e-mail. “A negative base effect is likely to strengthen in the coming months and rebound of investment growth is likely not earlier than the fourth quarter.”

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