OREANDA-NEWS. August 20, 2010. Rosstat released July statistics yesterday indicating robust consumption, with retail trade at +3% MoM and +6.6% YoY. Investments, however, dropped 10.7% MoM, which leaves only a 0.8% YoY increase. Meanwhile, CPI inflation was up 0.2% for a second consecutive week, following several months of 0.1%/week increases, reported the press-centre of OTKRITIE Financial Corporation.

View: The investment numbers were quite disappointing, primarily impacted by weakness in the construction sector (which is perhaps attributable to this summer’s record heat wave in Central Russia). Regardless, when combined with weak industrial data (-0.1% MoM in July, following -0.4% MoM in June in seasonally adjusted terms), this paints quite a discouraging picture. We believe this is more than merely a function of adverse weather conditions, indeed it seems to reflect decreasing domestic competitiveness.

Imports accelerated to 33% YoY in 2Q10 and will remain robust as the ruble has strengthened to pre-crisis levels in real effective terms.

Despite weakness seen in July in wages and disposable income, and the rise of unemployment to 7.0%, retail turnover – which is a proxy for private consumption – showed solid improvement in July. This confirms the view that consumption trends are generally quite rigid in their response, as accelerated inflation expectations could have pushed retail trade temporarily higher. However, if the economic slowdown persists, private consumption will follow this trend. Thus we remain retain our FY10 forecast of GDP growth at +3.1%.