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It’s taken a currency crisis and the biggest collapse in wages under President Vladimir Putin to put Russian workers on a more level playing field.

The decline in nominal salaries has probably pushed them below Chinese earnings in dollar terms, according to Renaissance Capital and Bank of America. Data set to be released this week will show that Russian wages adjusted for inflation plummeted for a 10th month, falling 9 percent in August and weighing on retail sales, according to the median estimates in Bloomberg surveys.

Russia’s ability to harness the potential of improved cost competitiveness may define the future of an economy decimated by a currency rout and a crash in oil prices. For the central bank, the prospect of a more tame increase in wages holds the possibility of unlocking funding for companies ensnared in the longest slump in capital spending in almost two decades. It’s also a boon to carmakers including Volkswagen AG and Ford Motor Co., which stuck with long-planned investments in Russia by opening new engine plants in recent weeks.

“There is a glimmer of hope -- if Russia’s labor remains cheap, this will make it easier for the economy to return to growth,” Tatiana Orlova, the chief economist for Royal Bank of Scotland Group Plc in London, said by e-mail. “For it to remain cheap, wage growth needs to be low and, more importantly, the ruble needs to remain weak.”

U.S., Spain

Stripping out the effects of inflation, the ruble is near the weakest level since 2005 against the currencies of Russia’s major trading partners, central bank data show. It’s the world’s worst performer in the past 12 months with a 43 percent drop against the dollar. Annual inflation, at 15.8 percent in August, is almost fourfold the central bank’s medium-term target.

The cost advantages may help undo the damage to Russian manufacturing after years of wage increases that exceeded productivity gains. The cost competitiveness of local producers was near parity with the U.S. and a few percentage points cheaper than the U.K. and Spain, Boston Consulting Group estimated last year. In 2015, Russia and Ukraine are the only two countries in Europe on track for a drop in real salaries, according to Hay Group, a management consultancy.

Russia’s July nominal wages averaged 33,980 rubles ($508), the least since March and down from last year’s average of about $839.7 in dollar terms. That’s less than in China, where salaries average $764.3, and below Mexico’s $636.6, according to Bank of America.

“If oil remains cheap and the Chinese economy continues to grow, wages in Russia may be behind China’s for a long time,” said Dmitry Dudkin, head of fixed-income research at UralSib Capital in Moscow.

Budget Squeeze

The Russian government, on course for the widest fiscal deficit in five years after a selloff in oil crimped budget revenue, didn’t adjust wages for inflation for state-funded employees this year. Officials are discussing compensation next year with the world’s biggest energy exporter at risk of the longest recession in two decades if oil prices remain at or about the current level of $50 a barrel.

The drop in labor costs represents “a significant change,” Oleg Kouzmin, a former central bank adviser who’s now an economist at Renaissance Capital in Moscow. “That’s positive for business, for the economy, creating grounds for import substitution.”

It remains to be seen if Russia’s new cost advantage is more than a blip. While authorities have shown willingness to tolerate a weaker ruble, wages may be squeezed by poor demographics and pressure to raise salaries before the 2018 presidential election, according to Renaissance Capital. Even if earnings “create some stimulus for non-capital intensive industries,” they “don’t guarantee an investment breakthrough,” said UralSib Capital’s Dudkin.

“The low level of wages doesn’t on its own mean that exports will take off,” said Neil Shearing, chief emerging-market economist at Capital Economics Ltd. “I wouldn’t expect to see a wave of investment into Russia taking advantage of the cheap ruble -- and without that it’s difficult to see Russia eclipsing emerging markets such as China with strong manufacturing sectors.”

‘Quality Shift’

The Bank of Russia, whose five interest-rate cuts this year have done little to reverse the slump, predicts real wages will contract as much as 7.5 percent this year. During Putin’s first terms as president in 2000-2008, salaries adjusted for inflation rose an average 15 percent a month, according to data compiled by Bloomberg.

Speaking after a rate decision on Friday, central bank Governor Elvira Nabiullina said wages will grow “modestly,” giving hope for a “quality shift” for the economy.

“Wages should increase in accordance with the pace of growth in labor productivity,” she said.

— With assistance by Vladimir Kuznetsov, and Zoya Shilova