The Russian ruble looks to have stalled as economic activity slowed alongside weakening consumer spending, and rising unemployment. The U.S. dollar has fallen over 30% against the Russian currency in 2015, seen below.
Economic activity in Russia continues to slow. In March, the economic growth measure came in at an annual pace of -3.4%, down from the previous month’s reading of -2.3%, while also missing estimates for -2.0%. After peaking at over 5.0% in 2010, economic growth has gradually declined, accelerating lower in recent months, seen below. Falling capital spending and a deteriorating consumer environment are weighing on economic activity.
“Capital investment extended a one-and-a-half year decline but fell less steeply than in the previous month. Conditions in consumer-facing sectors, which have been particularly hard hit by last year’s ruble crisis, appear to have deteriorated even further,” according to Reuters.
Additionally, the labor market has rapidly weakened. In April, the unemployment rate came in at 5.8%, slightly below the previous month’s reading of 5.9%, while also bettering estimates for 6.0%.
After reaching a low under 5% in early 2014, unemployment spiked higher, seen below. With business investment and factory activity weakening, it is unlikely employment picks up anytime soon.
“The economy is suffering from a number of factors, including the stagnation of the real sector as a result of the fall of oil prices and a decline in investment activity related to the growth of credit costs.
Additionally, the growth of geopolitical risks and instability on financial markets is also influencing companies’ investment activity,” according to Russia and India Report.
With unemployment at elevated levels and economic activity slowing, consumer spending weakened as well. In April, the retail sales figure came in at an annual pace of -9.8% contraction, down from the previous month’s reading of -8.7%, while also missing estimates for -7.9%. After reaching levels of 10% growth in 2012, retail sales have drastically declined to current levels, seen below. The economic slowdown, and massive depreciation of the ruble, have weighed on consumers’ purchasing power.
“Russian consumer demand, the engine of growth for more than a decade, has sputtered because of the ruble’s decline last year and inflation near the fastest in 13 years.
The world’s largest energy exporter is entering its first recession in six years, with the economy having shrunk 1.9 percent from a year earlier in the first three months.
High inflation is limiting real income, while expensive credit and a volatile ruble will [continue to] weigh on incomes,” according to Bloomberg. Russia’s economy remains weak. Economic activity is slowing alongside falling investment spending. This is having adverse effects on employment, which is weighing on consumer spending. With the issues Russia’s economy faces, gains should be limited in its currency in coming months.
(Seeking Alpha)(Data provided by Trading View)