Page 35 - RusRPTSept21

much stronger than in 1Q21 and 4Q20 at 2.2% SA QoQ vs. 0.9% SA QoQ in 1Q21 and 1.2% SA QoQ in 4Q20. However, the economy is still 3ppts below the pre-COVID-19 level of 0.55% SA QoQ (the average for 2017-19).
The results appeared to be better than we expected, and we will be able to single out the best performing sectors once more details are available on 10 September (i.e. the first estimate with a production breakdown). We believe that financial services could have performed well, as it saw an acceleration in credit dynamics in anticipation of the tapering of the subsidized mortgage program. We also expect a better performance from services related to tourism, as most outbound tourist destinations (e.g. Turkey and Egypt) were closed.
As the economy passes the contraction gap, we expect the momentum to ease in 2H21. Consumer activity, which has been driven by excess savings and a lack of outbound tourism, should normalize due to excess savings being spent in anticipation of increased wages and outbound travel bottlenecks to Turkey and Egypt (as well as to other countries) easing. Finally, the tapering of the subsidized mortgage program and a tighter monetary policy should offset elevated consumption and credit demand.
Support for consumption should come from stronger incomes, which still have room to improve vs. pre-COVID-19 levels (disposable incomes are still 0.8% below 2Q19). We also expect a further recovery in the energy sector amid OPEC+’s easing of production constraints and greater activity in the services sector as the third wave of COVID-19 fades.
Going into 2H21, we expect growth to slow to 0.7% SA QoQ in 2H21, the same rate as in 2018-19, which is still higher than our estimate (2% YoY). As a result, we expect GDP to grow 5.2% YoY in 3Q21 and 4.6% YoY in 4Q21, and we forecast an FY21 growth rate of 4.8% YoY, which is better than the recently revised CBR projection (4-4.5% YoY) and our previous estimate of 3.4% YoY.
35 RUSSIA Country Report September 2021 www.intellinews.com