Russian data on Friday showed it is too soon to call the bottom on the country's first recession in a decade, with unemployment rising to a 9-year high and retail sales slumped for a third month in a row. News that 200,000 lost their jobs last month, pushing up unemployment to 7.7 million, or 10.2 percent of the economically active population, comes hot on the heels of a record slump in industrial output.
Previous months' unemployment was also revised higher, adding some 400,000 jobless to the originally reported January figure and a whopping 700,000 to February. Without those adjustments, figures would have shown some 1.3 million Russians lost jobs in the past two months.
Kremlin watchers say unemployment represents the main challenge for Russian authorities but so far, public unrest has been limited and ratings for President Dmitry Medvedev and Prime Minister Vladimir Putin are still running high. Russia's once buoyant economy has fallen prey to lower oil prices at a time when the global slowdown reduces demand for its commodities, while the world-wide credit crunch leaves companies struggling to refinance foreign loans secured in better days.
That has filtered through into the domestic economy, with some 3.2 million losing their jobs since August, and many more forced to cope with lower salaries and shortened working weeks. Politicians - used to years of oil-fuelled boom - had hoped the worst of the slowdown came in the first quarter.
But the latest data adds credibility to the Economy Ministry forecast the recession could last for up to two years. "What we had expected for the end of the year has already been surpassed and it looks like unemployment could reach 12 percent," said Tatiana Orlova, economist at ING. "When unemployment is rising so fast, it is not surprising that retail sales are falling ever more quickly."
Retail sales fell 5.3 percent year-on-year, continuing their first contraction in nine years which started in February. Capital investment shrank 16.2 percent, along with unemployment and retail sales coming in gloomier than forecast.
Earlier on Friday, data showed foreign direct investment in Russia slumped 43 percent in the first quarter. However, the very fact that unemployment data was published should provide some relief to investors, who had been worried by the absence of a monthly breakdown in the March data, fearing this was a possible attempt to hide bad news.
Aleksandra Evtifyeva, economist at VTB Capital, also took heart from the fact that the pace of job losses slowed. "The fact that the slowdown eased between March and April is a very positive signal," she said. Real wages shrank 3 percent - less than expected but still their steepest fall in almost a decade.
Anecdotal evidence remains grim. This week alone, Russia's largest carmaker AvtoVAZ said it would slash working hours next month while smaller rival IzhAvto plans to shed 2,500 jobs, or half its workforce, from August.
The world's largest aluminium producer UC RUSAL expects stocks of the metal will keep rising until at least the third quarter, signalling lacklustre demand, while Russia's largest lender and most trusted bank Sberbank does not rule out a loss this year. As they tighten their belts, consumers are switching to cheaper shops to the benefit of cut-price retailers like Magnit , which saw sales rising by one-third in April.. Smaller supermarket bills weigh on the official retail sales data, which is calculated in billions of roubles.
The central bank's success in putting a lid on rouble depreciation earlier this year is seen as a key factor in keeping the population quiet, but unrest remains a key risk. "Should the economic situation deteriorate and unemployment reach 15 percent, it may become a real challenge to the authorities," Merrill Lynch said in a recent note. Russian markets shrugged off the data, with MICEX index gaining on the back of strong oil prices and the rouble holding broadly steady near four-month highs.
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