Unemployment Rate at 7-Month High

ReutersPeople speaking to an adviser at a job fair in Krasnoyarsk on Friday. The jobless rate rose to 6.1 percent in October.
The country's unemployment rate rose to a seven-month high, and retail sales grew at their weakest annual pace in more than two years in October, with analysts saying that Friday's data was a harbinger of much worse to come.

Russian companies have started cutting production, jobs and salaries as the global slowdown crimps demand, falling energy and commodity prices eat into profits in the economy's dominant sectors and the credit crunch makes it virtually impossible to attract funding from abroad.

"October is the first month when we see the hit of the crisis. ... It is the very tip of the iceberg," said Elina Rybakova, chief Russia economist at Citibank.

"It will get much worse from here."

Companies reduced capital investment by 1.9 percent in October, the monthly report from the Federal Statistics Service showed.

The jobless rate rose to 6.1 percent with 4.6 million people unemployed -- the highest number since March.

Retail sales grew just 12.3 percent in October, their slowest annual pace since May 2006 and undershooting a consensus forecast of 13.8 percent, while housing completions slumped 19 percent during the month.

"It seems that the first reaction in September, when people -- faced with concerns about the global crisis and fears of a ruble devaluation -- rushed to buy goods, has passed. Now, we are entering a period of slowing sales growth," said Alexander Morozov, chief economist for Russia and CIS at HSBC.

During October, X5 Group, the country's top food retailer, said it would lay off up to one-third of its managerial workers, and Renaissance Group announced 100 job cuts.

Magnitogorsk Iron & Steel Works said it is considering shedding 3,000 jobs at the country's largest steel plant, while truck maker KamAZ shortened its working week.

Job cut announcements have continued in November, with a survey from Levada Center this week showing that 21 percent of respondents or their families have already experienced delays in salary payments and 17 percent are reporting wage cuts.

Data earlier this week showed wage arrears rising to their highest level in a year in October, while annual industrial output growth was revised down to just 0.6 percent, the lowest since mid-2002.

Politicians are waking up to the fact that the country's natural resource wealth and $450 billion reserves stockpile do not make it invincible in the face of world economic problems.

Analysts say growth prospects for next year hinge on the resilience of the domestic consumer sector, the speed of the global economic recovery and, above all, on the price of oil, which has already fallen below half of the $95 a barrel factored into next year's budget.

Goldman Sachs forecasts that the Russian economy will grow 6.2 percent this year. Next year, it sees growth of 4 percent as long as oil averages $85 and stagnation if it averages $50.