Russian recovery hopes dashed as retail sales plunge

MOSCOW (Reuters) - Plunging retail sales and real wages have dashed hopes Russia's economic slump is past its worst, with data published on Monday instead suggesting that situation is getting worse.

But as with the previous month, September's data painted a mixed picture, with a double-digit fall in consumer spending to some extent mitigated by investment declining by less than expected.

Retail sales, a barometer for consumer spending, fell by 10.4 percent year-on-year, the Federal Statistics Service data showed. That was worse than a 9.1 percent fall in September and well below analysts' forecasts.

"The contraction in retail sales is huge and the worst since 1999. That shows that there are no signs yet that consumers are feeling any better," said Liza Ermolenko, economist at Capital Economics in London.

Real wages also continued to plummet, falling 9.7 percent, slightly better than analysts had forecast but worse than in August.

The statistics service revised its estimate for August's real wages slump from -9.8 percent to -9.0 percent.

However, capital investment fell in September by less than in August and than forecasts, although it was still down by 5.6 percent, compared with August's 6.8 percent slide.

This follows data on industrial production last week which was also better than expected, helped by a rebound in manufacturing.

"It looks like the industrial sector is bottoming out," said Ermolenko.

A weaker rouble has cut into consumers' real incomes but helps producers by making it easier for their goods to compete against more expensive imports.

Economists had been watching for any signs of improvement to the overall economic trends to establish whether the economy has reached a so-called bottom.

Although year-on-year comparisons are not expected to turn positive until well into next year, a stabilization of the decline would have suggested a turning point had been reached.

Forecasters had already been growing more pessimistic about recovery prospects, as the price of Russia's main export, oil, remains depressed and the global economy is struggling.

Monday's data will intensify speculation about the Russian central bank's next move on interest rates, which it will next discuss at a meeting on Oct. 30.

The evidence that domestic demand remains weak will add to the arguments for a rate cut. However, many analysts believe the central bank will wait before further rate cuts as inflation remains well in double digits.

(Reporting by Jason Bush and Alexander Winning; Editing by Mark Heinrich)

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