Russia Economic Activity - Still in the Red

While there were some signs of improvement in May compared with April (in retail, due to lockdowns being eased), economic activity in Russia remained very weak. Output in some sectors continued to decline, including industrial production and transportation (due to the oil output cuts under the OPEC+ deal), as well as construction. While the situation has improved in June, economic activity will still be far below pre-crisis levels.> Economic activity remained weak in May. The monthly statistics painted a mixed picture in May. While retail, the sector most affected by the lockdown measures, showed signs of recovery (up 5.4% m-o-m after seasonal adjustment, but still down 19.2% y-o-y), the situation worsened in every other sector except agriculture (which grew 3.2% y-o-y). Industrial production dropped 9.6% y-o-y in May due to the decline in oil output, construction contracted 3.1% and transportation was down 9.5% (due in part to lower oil exports). > Oil output cut deepens y-o-y decline in industrial production. The y-o-y decline in industrial production deepened from 6.6% in April to 9.6% in May. In 5m20, industrial output was down 2.4% y-o-y. The main reason for the even weaker result in May was the cut to oil production under the OPEC+ deal. Oil output fell 14.5% y-o-y in May and was down 2.3% y-o-y in 5m20. Thus, mining and quarrying output, which includes oil and gas production, contracted 13.5% y-o-y in May and 3.4% y-o-y in 5m20. Meanwhile, the contraction in manufacturing eased from 10.0% y-o-y in April to 7.2% in May. The segment's output was down 1.4% y-o-y in 5m20.> GDP could shrink by more than 8% in 2Q20. The statistics for the main two months of lockdown measures combined (April and May) showed a quite significant contraction of output in all segments except agriculture. Retail sales were down 21.2% y-o-y in April-May, industrial output 7.9%, cargo transportation 7.6% and construction activity 2.7%. While the situation will improve in June due to the easing of lockdowns, economic activity will remain well below pre-crisis levels (due to weaker demand and the OPEC deal), showing negative y-o-y dynamics.> Retail sales show signs of recovery in May. While retail sales were still down 19.2% in y-o-y terms in May, they were up 5.4% in m-o-m terms, having bottomed out in April (after seasonal adjustment), when they dropped 23.2% y-o-y. As a result, they were down 6.1% y-o-y in 5m20. The breakdown by segment shows that sales at markets and fairs took a bigger hit from the lockdowns than sales at shops, declining 18.3% y-o-y in May and 5.5% y-o-y in 5m20. The breakdown by product category indicated that food turnover declined 8.6% y-o-y in May after the 9.2% drop in April (it was down 1.5% y-o-y in 5m20), while the turnover of non-food products was down 29.2% y-o-y in May (and 10.5% y-o-y in 5m20). The category "paid services to the population" posted a 39.5% y-o-y decline in May following the 37.9% decrease in April (the breakdown by service type is not yet available). Taking into account that regional governments started to ease lockdown measures in June (for example, non-food stores were reopened in Moscow and Moscow Region), retail will continue to recover, though activity will remain below pre-crisis levels, as people will be more hesitant to go shopping, both because of the virus and because of the decline in incomes and increase in unemployment. > Personal incomes took a hit in April, while unemployment continued to rise in May. The State Statistics Service publishes income statistics on a quarterly basis, while wage statistics are published on a monthly basis, but with a one-month delay. As a result, the latest wage data we have is for April. It shows that nominal growth slowed to 1.0% y-o-y in April from 8.6% in March. Nominal wages were down 5.5% m-o-m after seasonal adjustment in April, which marked the sharpest monthly decline in the last 20 years. Real y-o-y wage growth turned negative, dropping to minus 2.0% from positive 5.9% y-o-y in March. Personal incomes likely posted an even steeper contraction in April (the official statistics are not available on a monthly basis). Unemployment continued to increase in May, rising by 220k to 4.5 mln people, or 6.1% of the workforce (after seasonal adjustment), the highest level since 2011. > SberIndex consumption gauge points to gradual recovery in June. The SberIndex, a leading indicator, was down by 9.0% y-o-y in the first half of June following the 16.8% y-o-y decline registered in all of May. Spending on non-food products was up 0.3% y-o-y over the first 14 days of June after a 15.5% y-o-y contraction in May, while spending on services was down 37% y-o-y and 48% in the respective periods. We expect a further recovery in the coming weeks, as regional governments are easing lockdown measures. For example, the Moscow government allowed non-food retail stores to reopen at the beginning of June and eased restrictions for some types of services on June 16.