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Russia: Strong labour market and spike in loans support inflationary concerns

  • Publication of the main April statistics is delayed to 4 June; meanwhile 1Q21 result looks mixed
  • Macro Stats 4M21: We build our diagnostics on two available figures – the unemployment rate and industrial production
  • Unemployment rate surprised positively with decline to 5.2% in April; industrial production up 7.2% y/y in April

While the publication of the main April statistics is delayed to 4 June, we build our diagnostics on two available figures – the unemployment rate and industrial production. The labour market is showing strength with the unemployment rate declining and the number of migrants increasing for two consecutive months. At the same time, industrial production growth reached 7.2% y/y in April, only slightly above expectations. Retail loan growth jumped to 19.6% y/y in April, and together with the fast recovery in the labour market it signals an increase in inflationary risks, especially ahead of the September elections when cabinet spending is likely to remain socially focused. We thus continue to project a 25 bp rate hike on 11 June.

Publication of the consumption statistics is delayed to 4 June, the 1Q21 result looks mixed with a favorable 1% y/y GDP contraction combined with a poor 3.6% y/y decline in real disposable income: Due to the long May holidays and the importance of the base effect, which requires a very detailed analysis of all figures, Rosstat is taking time to release the April consumption data – they will be available only on 4 June. It is worth keeping in mind that Russia enters 2Q21, which is projected to be very strong due to the statistical effect, with a rather mixed 1Q21 result. The Russian GDP contraction in 1Q21 was announced at a modest 1.0% y/y by Rosstat, a very positive result; at the same time, real disposable income was reported down 3.6% y/y, even worst than the 3.5% y/y contraction in 2020.

Unemployment rate surprised positively with a decline to 5.2% in April: The few figures released for April suggest that the recovery is accelerating. The available April data for the labor market looks rather favorable. The unemployment rate declined to 5.2% in April, posting the second month of a strong decline in the unemployment rate (see table below). Another confirmation of the recovery in demand for labor is the dynamic of migration to Russia: according to figures of the Ministry of Internal Affairs, the number of foreigners registered in Russia (the majority of which are migrant workers) increased from a monthly figure of 0.5 mn at the beginning of this year to a monthly level of 0.9 mn people in March and April.

Industrial production up 7.2% y/y in April or 1.1% y/y for 4M21: At the same time, the April Industrial production growth came in at 7.2% y/y, only slightly above the expected 6.5% y/y increase projected by the market consensus. The figure is predictably driven by the 14.2% y/y increase in the manufacturing segment, which experienced a sharp 7.7% y/y decline in April 2020. At the same time, the m/m performance in production does not look to be strong: during April, which consisted of 22 working days, the manufacturing output was 4.6% below the level of March (equally consisting of 22 working days), pointing out that the base effect played a substantial role in the strong April figures. Rosstat has also revised to the upside March figure from 1.1% y/y increase to 2.3% y/y; as a result, for 4M21 Russia’s industrial output was up 1.1%.

Acceleration in retail loans to 19.6% y/y in April strongly points to inflationary risks: The combination of the predictably strong production and a faster than expected recovery in the labor market maintain our concerns with regards to inflationary pressure. Despite government spending decelerating to 6% y/y in 4M21 and to only 1% y/y in April, the upcoming parliament elections are likely to keep the cabinet focus on social spending, which on top of the recovery in the labour market signals a strong demand side. The banking statistics also point out that retail loan growth has dramatically accelerated to 19.6% y/y, and is also inflationary. All these factors are likely to keep price growth elevated in the short term near a 5.8% y/y inflation level. The persisting news flows about the increase in producer prices in different segments are also likely to maintain inflationary expectations under upward pressure. We thus continue to see the possibility of the CBR 25 bp hiking the key rate at the 11 June policy meeting.


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The contents of this document have been prepared by Joint Stock Company “Alfa-Bank” ("Alfa Bank") as Investment Research within the meaning of Article 36 of Commission Delegated Regulation (EU) 2017/5...

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