MOSCOW: As the Russian economy moves toward recovery, the enduring pain suffered by the nation’s consumers shows just how arduous that journey will be.

While the nation’s recession eased last quarter, fuelling assertions by authorities that the worst is over, data due this week are set to show that domestic demand is still a long way from being able to help growth. Retail sales continued a double-digit decline, wages adjusted for inflation fell for a 12th month and an almost two-year drop in investment deepened in October, according to Bloomberg surveys of economists.

A decline in commodity prices, which resumed in the fourth quarter, is decimating the economy of the world’s biggest energy exporter as it faces the longest recession in two decades. An almost 10 per cent drop in oil since the end of September is limiting the central bank’s ability to cut borrowing costs as a weaker rouble risks stoking inflation.

“October data will show how close to recovery the Russian economy really is,” Eldar Vakhitov, an economist at BNP Paribas in London, said by email.

“I doubt that we’ll see any firm positive trends in the fourth quarter.” With the price of oil sliding, the rouble has weakened almost 6pc against the dollar in the past month.

The renewed weakness in commodity markets adds to the risks facing Russia’s nascent recovery. Gross domestic product shrank 4.1pc in the third quarter from a year earlier after declining 4.6pc in the previous three months, according to preliminary data released last Nov 12. Economy Minister Alexei Ulyukayev last week told German businessmen in Moscow that the fourth quarter will show greater improvement.

“There are signs of stabilisation, which isn’t yet sustainable,” given the risk of oil declining and investments falling further, economists at the central bank’s research and forecasting department said in a report last week. Business-activity indicators suggest an “economic recovery will resume not earlier than the start of 2016,” they said.

It will be a while before consumers can step up. Unemployment rose to 5.5pc last month for the first time since March, the Federal Statistics Service reported Tuesday. Disposable incomes adjusted for inflation fell 5.8pc from a year earlier, real wages dropped 9.7pc, investment slid 6.3pc and retail sales declined 10pc, according to the Bloomberg surveys.

Any boost from the central bank, which halted monetary easing in September and extended the pause last month, may have to wait until March, according to Governor Elvira Nabiullina. The Bank of Russia already cut its benchmark interest rate to 11pc this year, rolling back most of an emergency increase to 17pc last December.

While the worst for Russia’s economy is over, there’ll probably be no more rate cuts this year, Andrey Kostin, chief executive officer of Russia’s second-biggest lender VTB Bank PJSC, said Wednesday.

The data would also add evidence to forecasts that the Russian economy will face a prolonged period of muted growth — an L-shaped trajectory — as predicted by 21 of 31 economists surveyed by Bloomberg.

Russia shouldn’t expect any “significant normalisation” of production and consumer data earlier than the start of 2016, according to Oleg Kouzmin, a former central bank adviser who’s now an economist at Renaissance Capital in Moscow.

By arrangement with The Washington Post

Published in Dawn, November 22nd, 2015