August 27, 2009
Economy normalizes. Though retail was down 6.5% y-o-y in June, an analysis of seasonally adjusted data does not indicate deterioration in m-o-m terms. Investment fell 20.1% y-o-y in June, which is a better result compared with May (down 23.1% y-o-y). Construction data also indicate moderate m-o-m improvement, falling 19.6% y-o-y in June versus a drop of 21.9% y-o-y in May. The unemployment rate continued to decline in June to 8.3%, down from 10.2% in April, while the number of employees was only 1.4% lower y-o-y.
Real money supply expands. The M2 money supply grew 2.3% m-o-m in June. Thus, demand for rubles continues to grow and the economic situation is improving. In July, the monetary base has continued to expand quite steadily (2.4% over the first 20 days of the month). The accumulation of ruble deposits will force banks to expand lending.
Unsustainable budget for 2010-12. The government has approved the macroeconomic parameters of the 2010-12 federal budget. While it realistically expects the oil price to remain moderate at $55-57/bbl for Urals, and revenues will grow gradually in line with nominal GDP, it intends to maintain expenditures near current levels (R9.7 trln annually). This will run a significant budget deficit of 7.5% of GDP in 2010, decreasing to 3.0% in 2012. We believe that such fiscal policy leads straight down the path to deadlock and will not materialize.