Page 5 - RusRPTAug20
P. 5
1.0 Executive summary
It seems that Russia’s economy has passed the nadir of the coronacrisis in May and is staging a modest U-shaped recovery, albeit a very lopsided U with a long and flat right side.
Russia’s economy ministry estimates that Russian GDP contracted by about 11% y/y in April-May. Forward-looking indicators suggest that the economy bounced back somewhat in June.
Unsurprisingly consumer confidence crashed in the second quarter of this year to its lowest level since the first quarter of 2016 during Russia’s “silent crisis” years. However, business confidence has staged a mild recovery since May, although it remains well below its summer average of recent years.
Several things have contributed to the better than expected results. Inflation remains low thanks to depressed demand and that has allowed the Central Bank of Russia (CBR) to continue to make growth-boosting rate cuts; in July the regulator cut rates again to 4.5% -- a post-Soviet all time low.
The CBR has upgraded its outlook and is optimistic about recovery in 2021 predicting 3.5-4.5% growth. It now expects small current account surplus for 2020 instead of the $45bn deficit it predicted earlier, and only $18bn decrease in international reserves.
While oil tax revenues have fallen by some 70% following the collapse of the oil prices in March, the budget remains in reasonably good shape and the circa 2% of GDP deficit will easily be covered by the money in National Welfare Fund (NWF), plus an additional RUB2 trillion ($27.8bn) of borrowing, largely on the domestic bond market, on top of the RUB2 trillion that was already in the budget.
Likewise, the current account remained in surplus in the second quarter despite the fall in oil revenues thanks largely to a dramatic fall in imports. That was added to by the global travel bans as Russians love to holiday abroad and spend some $5bn a year overseas, which will not happen this year.
Industry has also been hard hit but appears to be bouncing back. The forward looking PMI indices have recovered most of their losses of the last two months, although they also remain slightly below the 50 no-change mark.
However, Russia's industrial output remained in recession with a 9.4% year-on-year decline reported in June and 3.5% y/y decline in 1H20 overall, according to the data from Rosstat statistics agency.
That is also weighing on business with one in three Russian companies losing money over the first four months of this year and bankruptcies have jumped significantly. The government has tried to ease the pain by encouraging lending and restructuring of existing debt, but while the stock of corporate credits did increase in April this has not been a major resources companies have turned to. The share of non-performing loans (NLPs) in bank loans has remained stable at about 6% of the total and is not a burden, but the CBR
5 RUSSIA Country Report August 2020 www.intellinews.com
