Page 6 - RusRPTJul21

1.0 Executive summary
Rosstat revised its estimates for the first quarter of this year growth and improved the result: the economy contracted by -0.7% y/y vs 1%, as previously reported.
Contraction of around 2% in the first two months of this year kept the overall result in the red, but by March economic growth was in the black (0.5%) and the pace grew after that. Analyst have been revising up all their estimates for the rest of the year as a result and the outlook for the whole year is now around 3.3%, up to 4% according to Russian President Vladimir Putin speaking at St Petersburg International Economic Forum (SPIEF). The World Bank and the EBRD have more modest 3.2% and 3.3% forecasts.
Starting from 2Q21, the economy will return to growth at a high pace thanks to the low base factor. BCS GM expects y/y growth to exceed 6% in the second and third quarters, while in 4Q21 it may slow to 3.8% as the low base factor of the coronacrisis begins to fade away.
The unleashing to a year’s worth of pent up demand is one of the main drivers as bne IntelliNews predicted in a December cover story Brighter Days Ahead. However, high inflation and the tightening of the Central Bank of Russia (CBR) monetary policy as a result will be a drag on spending and could take the edge off the recovery.
Retail sales rose 34.7% YoY in April, surpassing expectations thanks to the low base effects of April 2020 (-22% YoY). Moreover, the spike in retail implies that consumption in April was 5% YoY ahead of April 2019. If the base effects are excluded, the proxy for household consumption has shown a persistently strong performance for four months in a row (+2.2% SA MoM in April vs. +1.3% YoY in March, +1.2% YoY in February and +2.4% SA MoM in January). Both food and non-food consumption were up in April (+1.9% SA MoM and +2.6% SA MoM, respectively).
Industrial production was also very strong posting a 11.8% expansion in May, up from 7.8% in April, partly due to the low base effect, but even counting out that factor the fundamental growth was still strong, based on record high optimism amongst businessmen for the rest of the year. The PMI indices were all also well over the no-change 50 mark in a forward-looking indicator.
The fly in the ointment is inflation and real incomes which are both performing badly. Inflation has surged since the start of the year and consumer prices in Russia jumped 6.0% in May of 2021, following a 5.5% increase in the previous month and rose faster than market expectations of a 5.8% hike.
Even more worrying was the producer price inflation that soared to over 35%, its highest level on record, that appeared to be now cutting into manufacturing as the manufacturing PMI for June fell below the 50 no-change mark and contracted to 49.2 in June -- its first contraction of the year. The driver was falling orders as firms were hurt by the soaring prices.
6 RUSSIA Country Report July 2021 www.intellinews.com