Page 31 - RUSRptOct18

The State Statistics Service has published a breakdown of GDP growth in 2Q18 by the production approach. It also slightly revised the headline figure up to 1.9% y/y from the initial estimate of 1.8% y/y, taking growth in 1H18 to 1.7% y/y (revised up from 1.6% y/y). The estimate for 1Q18 remained unchanged at 1.3% y/y. We still think there could be a further upward revision to GDP growth in 1H18 on the back of recent upgrades to industrial production growth for 1Q18 and April (to 2.8% y/y from 1.9% y/y in 1Q18 and to 3.9% y/y from 1.3% y/y in April). The acceleration was quite broad based, as almost all sectors except for real estate showed positive dynamics in y/y terms. Finance, manufacturing, mining and quarrying, transport and wholesale and retail trade were the main contributors to GDP growth in 2Q18. We expect the current trends to continue in 2H18, with industrial production and transport leading the growth, though there could be some deceleration in trade and agriculture. The latest figures are in line with our full-year forecast of 1.8% GDP growth.
4.2 Inflation
The CBR rhetoric has toughened and more rate hikes this year are off.
The CBR said it may hike rates if inflation pressures continue to build. The CBR was previously expected to cut the rate at least one more time by year-end. Previously analysts suggested that increased emerging market volatility and drum of sanction risks could force the CBR to go out of its way and even hike the rate .
Key risk factors for Nabiullina are high global financial market volatility and inflation moving closer to 4% target faster than expected under external pressure.
In the meantime Consumer Price Index (CPI) inflation in August tipped above 3% registering 3.1% year-on-year according to the September 5 report of Rosstat statistics agency. Inflation reading in August was up from July's 2.5% y/y and above the CBR's forecast of 2.8-3%, reaching the highest since
31 RUSSIA Country Report October 2018 www.intellinews.com