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Russia’s Weakening Economy Strengthens Case for Rate Cut - ASHARQ AL-AWSAT English Archive
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Russia’s economy weakened overall at the beginning of the third quarter, mixed macroeconomic data for July showed on Wednesday.

The case on the central bank cutting interest rates at its next meeting in September is a much stronger case now, economists said.

Income data was worse than expected, with Russian’s real disposable income – a measure of how much cash households have left for spending after paying basic bills – fell 7 percent in annual terms.

Real wages also came in below expectations, rising only 0.6 percent last month.

Bucking the trend was a less-than-expected drop in retail sales, a major measure of Russia’s overall economic performance, even as Russians struggle with the impact of a commodity price slump and sanctions over the conflict in Ukraine.

“Today’s data supports our call for a 50-basis points rate cut at the (central bank) September meeting,” ING chief Russia economist Dmitry Polevoy said in a note.

The central bank left its main lending rate on hold at its most recent policy setting meeting in July, citing the need to maintain moderately tight monetary policy despite inflation in line with its forecasts.

Wednesday’s data follows numbers released on Monday showing industrial output falling 0.3 percent in annual terms in July, while expectations were for a modest growth.

“Overall, it looks like the deterioration in the industrial sector probably offset improvements elsewhere in the economy,” Capital Economics’ senior emerging markets William Jackson, wrote in a note.

“We wouldn’t, however, interpret the July data as a sign that the nascent recovery in Russia has stalled … For now, we still think it’s likely that the economy will return to positive year-on-year growth in the coming quarters.”

Asharq Al-Awsat English

Asharq Al-Awsat English

Asharq Al-Awsat is the world’s premier pan-Arab daily newspaper, printed simultaneously each day on four continents in 14 cities. Launched in London in 1978, Asharq Al-Awsat has established itself as the decisive publication on pan-Arab and international affairs, offering its readers in-depth analysis and exclusive editorials, as well as the most comprehensive coverage of the entire Arab world.

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