Economic activity is flat y-o-y in 1Q21, key rate hikes to limit growth going forward

RUSSIA ECONOMICS - In Brief 30 Apr 2021 by Alexander Kudrin

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Rosstat reported that in 1Q21 output of the five basic sectors was flat y-o-y, while in March, it increased by 2.4% y-o-y. Even though trends in industry, agriculture, construction, transport, and trade (retail and wholesale) that contribute to over 60% of the country’s economic activity, were uneven, the aggregate result was generally in line with expectations. GDP in 1Q21 may be nearly flat y-o-y as well, once the national accounts statistics become available. Rosstat also released its first estimate of real disposable income, which was down by 3.6% y-o-y. Meanwhile, real income contracted less – by 2.8% y-o-y only.Retail sales, however, haven’t dropped that much – it was down by 1.4% y-o-y in 1Q21 (and by 3.4% in March alone). Growing consumer lending supported consumer demand in 1Q21. In January, February, and March, it increased m-o-m by 0.9%, 1.3%, and 2.0% (or by 4.2% cumulatively during the first three months of the year).Despite a drop in real disposable income, real wage, however, was up y-o-y – by a mere 1.6% in 2m21 (latest available data). Negative trends in real disposable income appeared due to a drop in revenues from entrepreneurial activity, the poor performance of real pensions and other social benefits, as well as other sources of income not associated with wages. The share of wages in total household income was up y-o-y.Hence the importance of bank lending to economic growth increased in 1Q21. As the CBR began hiking the key policy rate, domestic consumer demand in 2Q21 is likely to grow more slowly m-o-m and q-o-q than was expected earlier (though in 2Q21 y-o-y growth figure will be high due to a base effect).On top of that, the gap between trends ...