Page 5 - RusRPTSept20

year.
The recovery of real wages has been helped by the low inflation despite the cutting of interest rates. In June real wages grew by 0.6% y/y and by an impressive 2.9% y/y in 1H20.
The processing industry also continued to recover in July, but the extractive industry remained at a low and the experience of different sectors is very different. For example, food and pharmaceutical production enjoyed brisk growth throughout the first part of the year, while car production has contracted sharply.
The weak development of the extractive industries largely reflects the contraction in crude oil production. The biggest cuts in oil production agreed by the OPEC + countries were still in force in July, but in August Russia may already slightly increase its oil production under the agreement. Russian natural gas production has also shrunk significantly this year.
The recovery in production is also reflected in the bounce back in the PMI indices which were almost back to the 50 no-change mark in July and bode of continuing improvements as the summer gives way to autumn.
The external situation was less good and badly affected by the fall in oil prices. In the April-June period, the value of Russian goods exports was down by 30% y/y, mostly on a drop in export commodity prices.
The volume of exports, in contrast, saw small increases for some major export items despite the coronavirus pandemic. Crude oil exports were up 4% y/y, while petroleum products climbed by 13%. Export volumes of iron and steel products increased slightly, while natural gas exports decreased.
The value of Russian goods imports fell by 13% in the second quarter, a significantly smaller drop than in previous economic crises. Car imports decreased sharply, while imports of machinery & equipment fell less than the general drop in goods imports. Imports of certain foodstuffs increased from a year earlier.
All-in-all the balance of payments remains positive, partly thanks to a recovery in oil prices to c$45. Earlier fears that the current account would go negative this year have faded away and now Russia is expected to earn a surplus of c$45bn this year, about half the level of 2019.
On the political front, the story has been dominated by the protests in Belarus. bne IntelliNews has covered the story in depth, but at the time of writing it appears a military option where Russian annexes Belarus is off the table, but Russian President Vladimir Putin does seem to be pushing for much closer integration of the two countries under the Union State deal – a sort of Eurozone of the east – that was signed in 1999.
5 RUSSIA Country Report September 2020 www.intellinews.com