Consumer demand improved in January, GDP nowcast estimate remains sluggish for 1Q21

RUSSIA ENERGY / FINANCE - In Brief 23 Feb 2021 by Marcel Salikhov

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Rosstat released its initial set of data for 1M21. According to our estimates based on Rosstat data, retail trade increased +2.4% m-o-m s.a. It's the highest monthly growth rate since last June. Services increased by 1.6% m-o-m s.a. but remained 10.3% lower than a year ago. So trade in goods almost recovered back to pre-COVID levels, but services stay under pressure. Chart 1. Retail trade, wages and real incomes, 2011-2021Source: RosstatChart 2. Retail trade, services and public catering, 2011-2021Source: RosstatAlternative Sberbank data supports the idea of improved consumer demand in January-February. Current weekly Sberbank data shows that consumer spending increased +7% y-o-y in February 21 vs +5% y-o-y in January. So you can expect a further improvement in retail trade data from Rosstat in February.Chart 2. Rosstat and Sberbank estimates of retail trade, 2019-21Source: Rosstat, SberbankMost probably, sudden pickup in consumer spending at the beginning of the year is the lagged effect of the December surge in wages. In real terms, salaries in the official labor market improved by +3.2 m-o-m s.a. (+6.1% y-o-y) in December. We see it as a one-time event, triggered mostly by increased personal taxation in 2021. High-earners have to pay a 15% income tax rate on wages higher than 5 mln RUB per annum (~$67K) vs standard 13%. So it made sense for employers to pay bonuses in advance to negate the effects of increased taxation. It could obscure traditional seasonal patterns. Our GDP nowcast model expects relatively sluggish growth 1Q21. The current estimate is for the quarter is +0.4 q-o-q s.a. vs +0.8% in 4Q20.