Page 6 - RusRPTAug21

1.0 Executive summary
The Russian economy surpassed pre-COVID-19 levels in 2Q21, with the country’s 1H21 growth estimated at 4.6% YoY and its 2Q21 growth at 10.1% YoY, according to the Ministry of Economic Development.
While some sectors have experienced constraints (e.g. OPEC+ and COVID-19-related restrictions), the growth in non-constrained sectors points to a moderation in growth rates. The momentum from stronger production and consumption has translated into higher incomes and lower unemployment. We expect the momentum to fade in 2H21 as consumption stabilizes following the spending of excess savings, as well as due to lower loan growth.
The good news is that Russia’s economy continues to grow faster than expected. Russia’s Economic Development Ministry has upgraded its growth forecast for this year to 3.8% from 2.8%, the ministry said on July 9.
“The estimate for Russia’s 2021 GDP growth is 3.8% against 2.9%. The reason for the increase of the GDP forecast for 2021 is better dynamics of consumer and investment demand,” a spokesperson for the ministry told reporters.
The GDP growth forecasts for 2022 and 2023–2024 were maintained at 3.2% and 3%, respectively. Russia’s industrial output will still rise by 2% this year, but the forecast for 2022 was improved to 3.6% from 3.4%. The processing industries will expand by 2.4% this year and by 2.5% next year, while the mining industry will grow by 0.7% this year and 5.9% next year.
The bad news is that inflation is also accelerating faster than expected. Despite repeated big rate hikes by the Central Bank of Russia (CBR) since the start of this year – March (25bp), April (50bp) and June (50bp) – inflation has continued to climb from 5.2% in January to 7% in June.
CBR governor Elvira Nabiullina has blamed the increases on a variety of factors including soaring food prices, rising commodity prices and broken supply chains, which is creating “demand inflation” as opposed to the regular monetary supply inflation.
The problem with demand inflation as it is not caused by an excess of cash chasing too few goods rate hikes have little to no effect on inflation. Basically there is little the CBR can do to bring inflation down other than wait for the supply chains to be repaired and for the economy to rebalance, which is likely to take around six months.
At the same time the broken supply chains has driven producer price index of inflation (PPI) up even faster than consumer price inflation (CPI), which is running at an astonishing 35% year-on-year – its highest level ever.
On top of these problems the CBR has asked if the structure of the economy has not been fundamentally changed by the events of the last year. Shopping and increasingly business has gone online, labour has become remote and
6 RUSSIA Country Report August 2021 www.intellinews.com