No major change in trends: economic growth remains decent, albeit uneven across segments

RUSSIA ECONOMICS - In Brief 29 Aug 2024 by Evgeny Gavrilenkov

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Rosstat reported that in 7M24, the output of the five basic sectors (a monthly proxy for economic activity accounting for industry, agriculture, construction, trade, and transportation) grew by 5.8% y-o-y – not bad a result, even though the y-o-y growth was higher in 1H24 (6.1%). Rosstat revised the 2023-2024 monthly statistics for this indicator and the industry combined. Next week, we’ll try to dig deeper into these revisions and try to understand better if any change in trends occurred. At a glance, it doesn’t look so yet. The industrial output increased by 4.8% y-o-y in 7M24 and posted a 0.8% m-o-m contraction in seasonally adjusted (by Rosstat) terms. In 1H24, industry was up by 5.0% y-o-y. The mining segment contracted y-o-y by a mere 0.5% in 7M24 (and 0.2% in 1H24). Manufacturing grew y-o-y by 8.6% y-o-y in 7M24 (9.0% in 1H24). Retail sales also posted some deceleration to 8.4% y-o-y in 7M24. Construction grew by a mere 3.3% y-o-y over the same period. Interestingly, investments in production capacity grew by 10.9% amid decelerating construction growth. Such a gap between construction and investment growth most likely stems from the fact that, according to international methodology, the latter also includes spending on certain military goods and works. Overall, economic growth y-o-y naturally decelerates amid the evaporating low base effect (seen in 1Q23). So far, overall economic growth remains decent. Some deceleration in retail sales and construction results from the increased interest rates. There is a chance that CBR rate hikes may help to cool down overheated domestic demand without a serious shock to real growth.