Page 7 - RusRPTAug21

more flexible, and production has become geographically diverse. The CBR is studying what all this means for its assumptions and targets.
The upshot of these problems is the economic recover began to splutter in June. Russia’s seasonally adjusted IHS Markit Russia Services Business Activity Index registered 56.5 in June, down from 57.5 in May, but still well above the 50 no-change mark, as services continue to recover from last year’s annus horribilis. The manufacturing PMI contracted slightly in June, but over all business is still growing strongly.
Business optimism also cooled somewhat in June as a result, but it still remains at historic highs not seen for at least eight years.
Russia’s labour market further extended its gains in May, as unemployment declined to 4.9% and industrial production soared in May by 11.8% from 7.6% in April, which was also revised up from the previous result of 7.2%, Rosstat said on June 24. The economy is on the mend and will return to the pre-crisis level in July, the spokesperson said.
Going forward the challenges for the Kremlin in the medium term remain reversing the decline in real income levels that are really hurting business climate and also pose a political danger, especially with the Duma elections looming in September. As the budget has returned to profit far faster than anyone expected, thanks to $75 oil, there is plenty of money to stimulate the economy and spending ahead of the elections can be expected. Putin has already promised to spend an additional RUB400bn ($5.4bn) on the social sphere on top of spending slated in the budget. And the spending on the 12 national projects should also feed through into a recovery of incomes in the latter part of this year, as it briefly did in the last quarter of 2019.
The ministry maintained its estimate for Russians’ real disposable income growth this year at 3%, while the forecast for real wages increase was raised to 3.2% from 2% due to a faster than expected recovery of the labour market.
That will feed through to the retail sector, which is another engine of growth. The retail turnover growth estimate was also improved last month to 6.9% in 2021 from 5.1%, to 3% in 2022 from 2.9%, and to 2.9% per year in 2023–2024 from 2.8%, according to the Economics Ministry’s update forecasts.
The other major problem is the low levels of investment, which has plagued the Kremlin for years and is the main thing holding back faster growth. Russia fixed capital formation is running at 20%, when it needs to be at least 25% to create sustained economic growth and remains behind the 30% that many Central European countries have maintained for years.
Elections loom, repressions ramped up
Politically the Duma elections are already starting to overshadow domestic politics. The state is on the one hand trying to battle the coronavirus (COVID-19) pandemic and has taken drastic and unpopular actions including a mandatory vaccination rule that has sent vaccination rate up from 13% of the population to 17% in a month. But on the other hand the state is trying to minimise the political damage of these moves and has left the coronavirus
7 RUSSIA Country Report August 2021 www.intellinews.com