Bloomberg News

Russian Retail Sales Surge Most in 3 Years, Beat Forecasts

October 19, 2011

(Updates with economist quote in fourth paragraph, market reaction in fifth.)

Oct. 19 (Bloomberg) -- Russian retail sales jumped the most since October 2008 last month as unemployment fell to a more than three-year low, showing consumer demand may help revive the stalling economy.

Sales rose 9.2 percent from a year earlier after a 7.8 percent gain in August, the Federal Statistics Service in Moscow said today in a statement. Real wages advanced 6.2 percent, the fastest this year. Economists forecast an 8.5 percent increase in retail sales and a 4.7 percent gain in wages, according to the median estimates of two Bloomberg surveys.

Inflation eased last month and won’t exceed 7 percent this year, the lowest rate since 1991, according to the central bank. That’s bolstering consumers even as exports suffer amid a weaker global economy and the euro region’s debt crisis. Spending was aided by further growth in bank lending and a stronger jobs market, according to Dmitry Polevoy, chief economist for Russia and Kazakhstan at ING Groep NV in Moscow.

“Domestic demand performance has been not only resilient but even improving in September,” Polevoy said in an e-mailed research note. “Continued credit expansion on both retail and corporate sides strongly contributed to decent non-food sales and investment figures.”

Stocks, Ruble

The ruble-denominated Micex Index of 30 stocks fell after the release and was 1.5 percent down at 1,403.96 at 5:56 p.m. in Moscow. The ruble advanced 0.5 percent to 31.0781 per dollar.

Third-quarter consumer confidence reached its highest level since April-June 2010, the statistics service said Oct. 7. Economic growth, which slowed to 3.4 percent from a year earlier in the second quarter from 4.1 percent in the first, may accelerate through the end of 2011, the government said last month in a revised forecast.

Loans to households grew 3.6 percent in September from a month earlier, almost matching July’s 3.7 percent, the fastest rate since at least 2009, central bank department head Mikhail Sukhov said Oct. 11. Retail loans rose 19.6 percent in the year through August, according to central bank data.

M.Video, which sells televisions and computers, said yesterday that revenue rose 24 percent from a year earlier in the three months ending September. “We’re seeing that our consumers’ confidence remains,” Chief Executive Officer Alexander Tynkovan said in an e-mailed statement. “We look forward toward our high season in December with optimism.”

Currency Volatility

In addition to borrowing more, consumers are also tapping savings because of ruble volatility, Vladimir Tikhomirov, chief economist at Moscow-based Otkritie Capital, said today before the release.

“Demand is being supported by lending growth and as households reduce savings,” Tikhomirov said. “That’s happening because of the unstable ruble rate. Currency volatility make people more inclined to spend than save because it’s unclear which currency is better for keeping savings.”

Options were pricing in ruble fluctuations of as much as 19.08 percent against the dollar over the next three months on Sept. 26, the highest since March 2009 and up from 9.7 percent on Aug. 1, implied volatility data compiled by Bloomberg show.

Global Turmoil

Still, manufacturing stalled in the third quarter on dwindling export orders and Russians’ spending may dip as the effects of the global financial turmoil filter through the economy.

“According to previous crises/slowdowns, investment reacts to adverse external developments with a one-quarter lag, while consumption takes at least three quarters before moderating,” Renaissance Capital analyst Ivan Tchakarov wrote in an e-mailed note Oct. 14.

Demand for consumer loans has grown less than expected so far in October, the Kommersant newspaper reported today, citing a survey of the country’s 30 biggest retail banks.

Sales growth at food retailers slowed in the third quarter and chains provided contrasting evaluations of the outlook. X5 Retail Group, Russia’s largest grocer by revenue, said Oct. 10 that it experienced a “cutback in spending amid unstable economic conditions in Russia and worldwide.” OAO Magnit, the biggest by market capitalization, said the following day that it didn’t see “any noticeable decline in consumer activity.”

Any concern among food retailers is “clearly premature,” as government spending before presidential elections next March will buoy consumers, Julia Tsepliaeva, chief economist at BNP Paribas in Moscow said Oct. 17 by phone. “Rising incomes, which have boosted retail-trade growth, are unlikely to match double- digit figures seen before the crisis, but higher pensions and salaries for state workers are more than capable of maintaining the current demand.”

Disposable incomes advanced 3.2 percent in September, above the median estimate in a Bloomberg survey of 2.3 percent growth. Investment spending was 8.5 percent, the highest level this year and more than analyst forecasts of a 6.9 percent advance, another survey showed.

--With assistance from Zoya Shilova in Moscow. Editors: Andrew Langley, Alan Crosby

To contact the reporters on this story: Scott Rose in Moscow at rrose10@bloomberg.net; Alena Chechel in Moscow at achechel@bloomberg.net

To contact the editor responsible for this story: Balazs Penz at bpenz@bloomberg.net


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