Russia Economic Activity - Basic Sectors Hit in April, May Promises Improved Consumption

Basic sector output dropped 9.9% y-o-y in April, with sectors driven by consumer demand (retail, services, manufacturing) suffering the most. Though economic activity will continue to be down y-o-y in May, a leading indicator of consumer expenditures has shown an improvement versus April. Across Russia, regions with the highest share of consumer services, as well as major industrial centers, have been hardest hit by the pandemic and lockdown and drop in external and domestic demand. > Basic sector output down 9.9% y-o-y in April after 1% expansion in March. Basic sector output fell 0.9% y-o-y in 4m20, versus 2.3% growth in 1Q20. All subsectors besides agriculture contracted in April. Retail, services, manufacturing and wholesale suffered the most from the drop in domestic demand. However, leading indicators show the situation likely improved in May. > Sectors driven by consumer demand hit hardest. Retail sales tanked 23.4% y-o-y in April after expanding 5.6% in March (they were down 2.8% in 4m20), while services ("paid services to the population," technically only a part of the services category) plunged 37.9% after declining 4.4% in March. Wholesale sales were down 11.3% y-o-y in April versus 9.8% growth the month before (still up 4.2% in 4m20). Other sectors fared better. Cargo transport declined 6.0% y-o-y in April, while construction was down 2.3%. Agriculture has been immune, following up on March's 3.0% y-o-y expansion with 3.1% growth in April (output up 3.0% in 4m20). > Breaking down the pressure on services. Food services, which includes restaurants, cafes and bars, saw sales plunge 51.5% y-o-y in April, affected by lockdown measures (though delivery and takeaway are allowed). For 4m20, the segment was down 11.1% y-o-y. Separately, "paid services to the population" fell 37.9% y-o-y in April and 10.3% in 4m20. A breakdown of these services showed culture and tourism services dropped by 96% y-o-y in April, hotels and accommodation by 89% and transport by 65%. Communication, housing and utilities were less affected, down 4.0%, 7.2% and 10.3%, respectively, in April.> Leading indicator shows moderate improvement in household expenditures in May versus April. According to Sberbank's indicator of consumption in Russia (SberIndex), spending was down 16.8% y-o-y in May after dropping 26.2% in April. Expenditures on non-food goods improved the most in May, as they were down 15.5% y-o-y compared with -36.6% in April. Food spending grew 12.2% in May, versus 11.1% growth in April. Services, however, remained under serious pressure in May, with expenditures on them still down 41.0% following a 47.6% slide in April. We believe that, though this data may deviate from official statistics (for example in food expenditures, see our report "Gauging Virus Impact in April-May" for more details about methodology), the SberIndex is a reliable way to understand how consumer expenditures have been affected by the pandemic and lockdown measures. > Regions with highest share of consumer services, industrial centers suffer the most. Based on the data for the major sectors (agriculture, industrial production, construction, wholesale and retail), we highlight two major shocks for regions across Russia in April. The first was related to the coronavirus outbreak and quarantine measure, affecting regions with the highest share of consumer services and strictest lockdowns (where there are the highest levels of infection) - they include the city of Moscow, Moscow Region, Leningrad Region (surrounding St Petersburg), the city of St Petersburg and Stavropol Region. These places recorded the sharpest declines in wholesale and retail sales. Meanwhile, regions that are home to industrial centers like Kaliningrad and Kaluga, along with those relying on the extraction coal, oil and gas, metals and diamonds like Tuva, Sakha and Mari El, were hit by the decline in industrial production attributable to weaker external demand for natural resources, the reduction in oil output under the OPEC+ deal and the drop in local demand (in particular, for cars).