The outlook for the Russian economy remains somewhat gloomy after the recently-released breakdown of the Q1 national accounts confirmed the broad-based slowdown. With the euro zone recession sapping export demand, growth in Russia has become increasingly dependent upon consumer spending. However, while private consumption expanded 6.1% (y-o-y), gross fixed investment cooled to just 0.1%, its weakest pace of expansion for three years. In response, President Vladimir Putin last month announced a US$13.6bn investment plan to improve road and rail networks. In addition, he signed a deal that will double oil flows to China, underscoring the growing importance of Asia as an export destination. Despite a reasonably robust labour market, retail sales eased to 2.9% (y-o-y) in May, from 4.1% in April, as real disposable income unexpectedly contracted by 1.3%. Industrial production remains sluggish, advancing by 0.3% (y-o-y) in Q2 after a paltry 0.1% increase in June. However, the outlook for the manufacturing sector improved as the PMI climbed to a four-month high of 51.7 in June.
Bank Rossii, the central bank, held the refinancing rate of 8.25% at Elvira Nabiullina’s first policy meeting as Chairperson on July 12. Inflation slowed to 6.9% (y-o-y) in June, although it remains above the bank’s 6.0% target ceiling.
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