Russian Consumer Agony Damps Optimism About Economic Rebound

  • Unemployment rate rose in October for first time since March
  • Wages are seen falling for 12th month, investments for 22nd

As the Russian economy moves toward recovery, the enduring pain suffered by the nation’s consumers shows just how arduous that journey will be.

While the nation’s recession eased last quarter, fueling assertions by authorities that the worst is over, data due this week are set to show that domestic demand is still a long way from being able to help growth. Retail sales continued a double-digit decline, wages adjusted for inflation fell for a 12th month and an almost two-year drop in investment deepened in October, according to Bloomberg surveys of economists.

A decline in commodity prices, which resumed in the forth quarter, is decimating the economy of the world’s biggest energy exporter as it faces the longest recession in two decades. An almost 10 percent drop in oil since the end of September is limiting the central bank’s ability to cut borrowing costs as a weaker ruble risks stoking inflation.

“October data will show how close to recovery the Russian economy really is,” Eldar Vakhitov, an economist at BNP Paribas SA in London, said by e-mail. “I doubt that we’ll see any firm positive trends in the fourth quarter.”

Oil, Ruble

With the price of oil sliding, the ruble has weakened almost 6 percent against the dollar in the past month. It gained 0.8 percent to 64.63 rubles a dollar at 11:17 a.m. in Moscow.

The renewed weakness in commodity markets adds to the risks facing Russia’s nascent recovery. Gross domestic product shrank 4.1 percent in the third quarter from a year earlier after declining 4.6 percent in the previous three months, according to preliminary data released last Nov. 12. Economy Minister Alexei Ulyukayev last week told German businessmen in Moscow that the forth quarter will show greater improvement.

“There are signs of stabilization, which isn’t yet sustainable,” given the risk of oil declining and investments falling further, economists at the central bank’s research and forecasting department said in a report last week. Business-activity indicators suggest an “economic recovery will resume not earlier than the start of 2016,” they said.

Incomes, Investment

It will be a while before consumers can step up. Unemployment rose to 5.5 percent last month for the first time since March, the Federal Statistics Service reported Tuesday. Disposable incomes adjusted for inflation fell 5.8 percent from a year earlier, real wages dropped 9.7 percent, investment slid 6.3 percent and retail sales declined 10 percent, according to the Bloomberg surveys.

Any boost from the central bank, which halted monetary easing in September and extended the pause last month, may have to wait until March, according to Governor Elvira Nabiullina. The Bank of Russia already cut its benchmark interest rate to 11 percent this year, rolling back most of an emergency increase to 17 percent last December.

While the worst for Russia’s economy is over, there’ll probably be no more rate cuts this year, Andrey Kostin, chief executive officer of Russia’s second-biggest lender VTB Bank PJSC, said Wednesday.

L Shape

The data would also add evidence to forecasts that the Russian economy will face a prolonged period of muted growth -- an L-shaped trajectory -- as predicted by 21 of 31 economists surveyed by Bloomberg.

Russia shouldn’t expect any “significant normalization” of production and consumer data earlier than the start of 2016, according to Oleg Kouzmin, a former central bank adviser who’s now an economist at Renaissance Capital in Moscow.

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