Page 6 - RusRPTMay21

1.0 Executive summary
Russia’s economy began to clearly emerge from the coronacrisis in March as industrial production went into the black for the first time in almost a year posting a 1.1% expansion, and inflation peaked and started to fall again in the same month.
Russia’s economy contracted less than expected in 2020 and now is bouncing back more strongly than anticipated in the first quarter. But it is still early days as while the economy expanded by a modest 0.5% in March, contractions of over 2% in January and February means the result for the first quarter remain negative.
Other indicators were also positive. The PMI Services index was over 55 signalling that services, which had been especially hurt by the lockdowns, are bouncing back. Car sales are up and residential construction is expanding (although that has been helped by a generous state-backed mortgage subsidy).
The bigger macro indicators were also doing well. The current account balance shrank, but that is a good thing in that it was due to imports expanding quickly as Russians start to shop and are feeling confident enough about the future that they are buying bigger ticket (and often imported) items, dipping into the large pool of savings they built up over the crisis year.
Likewise, the federal budget was back in profit in March after running a deficit in 2020 for the first time in years. This was helped by a recovery in oil prices, which were up into the mid $60s by the end of April on the back of recovering global demand.
The bugbear in this otherwise upbeat story is inflation began to surge in the fourth quarter of 2020 and really took off at the start of this year, as companies anticipated the end of the pandemic after the vaccines appeared and commodity prices began to rise strongly. In addition to the recovery in oil prices, iron prices are at nine-year highs and copper prices topped $10,000 per tonne for the first time ever at the end of April.
Inflation is also being driven by a rise in food price and the pass-through from the devaluation of the ruble in 2020. The government stepped in with administrative food price controls and a voluntary pledge by producers to refrain from passing on price increases to consumers. However, these measure, while politically appealing, are ineffective and cause distortions. The ruble has been very volatile and just the uncertainty has also fuelled inflation.
The Central Bank of Russia (CBR) stepped into the breach and hiked
6 RUSSIA Country Report May 2021 www.intellinews.com