Russia: Weaker consumer activity – a challenge to budget conservatism? – ING

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“Retail trade growth decelerated to 2.2% year-on-year in September, below expectations, despite unemployment dropping to a new low of 4.5% and real salaries growing more than the expected rate of 7.2% YoY,” note ING analysts.

Key quotes

“Regardless of the reasons for the slowdown in consumption, it suggests that GDP growth- having already decelerated from 1.9% YoY in 2Q18 to 1.6% YoY in 3Q18, as reported by the Ministry of Economic development just now- will remain under pressure in the coming quarters.”

“While neutral for monetary policy, which has to remain moderately hawkish because of the heightened inflationary risks, this weakening consumer activity amid declining approval rates for the country’s political leadership, might become a challenge to the conservative budget policy implemented so far. An easing in the budget rule and calls for extra social spending to be incorporated into the 2019-21 budget draft would be the major factors to watch.”

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