Domestic demand holds momentum in June 2017; retail trade is up 1.2% y-o-y on strong auto sales

RUSSIA ENERGY / FINANCE - In Brief 20 Jul 2017 by Marcel Salikhov

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Rosstat published today short term monthly data for June 2017 covering households. It’s positive in general terms. Real incomes continued to rise (0.4% m-o-m s.a.; 0.0% y-o-y) after uptick in May but real wages stalled on a monthly basis (0.0% m-o-m; +3.8% y-o-y ) negatively affected by higher inflation (0.6% m-o-m). As we have noted previously both indicators have their own limitations representing domestic demand but we believe that real wages are more coherent in capturing short-term fluctuations. Source: Rosstat, IEF estimatesRetail trade volume is up 0.14% m-o-m and 1.2% y-o-y. So it seems that consumers have switched to more optimistic behavior and started to increase spending. In 2H16 there was a discrepancy between growing real wages and falling retail trade. In 2017 it is waning off. Non-food sales are positively affected by stronger auto sales. Passenger vehicles sales increased strongly in June (+15% y-o-y) and are up 6.9% y-o-y in 1H17. So Russian economic recovery continues despite the headwind from lower prices and increased FX volatility. Domestic consumers took very cautious stance in the last two years and to larger extend switched to ‘crisis mode’ of consumption. This process started to revert back in 2017 and continued in June.