Kremlin Shift from Austerity Stokes Hopes of Growth Pickup

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Russia is loosening the financial reins a bit after years of austerity, raising hopes growth could soon pick up even as the global outlook dims.

Real disposable incomes grew 3% in the third quarter after more than four years of declines, according to data published Thursday.

Although the consumer picture remained mixed in September, central bank plans for faster monetary easing could give a boost later this year. Funding is also accelerating on a $400 billion multi-year state spending plan before the end of the year.

“Private consumption remains cautious but will get a boost from real wage growth,” Vladimir Miklashevsky, a strategist at Danske Bank A/S in Helsinki said. “There will be a significant upward change in consumption next year.”

Kremlin Shift from Austerity Stokes Hopes of Growth Pickup

Years of ultra-tight monetary and fiscal policy succeeded in limiting the damage from sanctions and slumping oil prices but also kept growth in the doldrums. But with the Kremlin under rising pressure to deliver on promises of higher living standards, the government is boosting spending and the central bank has accelerated interest-rate cuts.

The cautious largesse isn’t expected to deliver more than a few tenths of a percentage point of growth, but that could be enough to offset some of the weakness from the global trade war and other headwinds. Central Bank governor Elvira Nabiullina has warned that growth will be limited without structural reforms.

Retail sales remained soft in September, growing 0.7%, compared with a estimate of 1% in a Bloomberg survey, the state statistics service reported on Thursday. Income growth for the year remains weak at just 0.2%, despite the jump in the third quarter.

Retail sales (Y/y)0.7%0.8%
Cargo shipments (Y/y)-0.2%-0.6%
Construction (Y/y)0.8%0.3%

Economic growth jumped 1.9% in the third quarter compared to a year earlier but may ease to as low as 1.4% in the last three months of the year, the Economy Ministry said Thursday.

“The increase in spending should accelerate growth in the second half,” said Anton Stroutchenevski, chief economist at Sberbank CIB.

©2019 Bloomberg L.P.

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