Page 37 - RusRPTSept21

last week clearly proved us right. According to the revised estimates, industrial growth in May-June rose 10-12% y/y, plunging 6.8% in July. We expect to see a similar trend in other sectors of the economy – Rosstat postponed the release of its July monthly report by one week until 1 September.
In 2H21, we expect Russia’s economic growth to slow from a peak of 10.3% y/y in 2Q21 – the highest since 2000 – by the end of the year growth may slow to 4% and to an average of 4-4.5% y/y for 2021. The impact of the two main drivers that spurred the acceleration of the economy this spring – i.e., the recovery of economic activity due to the lifting of the quarantine measures and lower number of new COVID-19 cases, as well as the extremely low base in 2Q20 – will begin to weaken noticeably in 3Q21, following the deterioration of the epidemiological situation as COVID spread in June-July. This should be further worsened by a weaker crop and the shift in the base factor.
Another major challenge for the government was a significant decrease in price stability. Consumer prices in Russia began to grow rapidly from 2Q20, i.e., at a time when demand in the economy was at its trough on a peak of the new wave of the pandemic. At that time, ruble devaluation accelerated inflation – between January and April 2020, the Russian currency lost a quarter of its nominal value against the greenback following a fall in oil prices and an increase in geopolitical risks amid aggressive easing of the Central Bank's monetary policy (the key rate was cut from 6.25% in January to 4.25% in July 2020). As a result, over the past year, the inflation rate in Russia more than doubled.
The regulator did not react to the increased price until March 2021, i.e., when the inflation rate was already at its 5-year high. In the period from March to July 2021, the Central Bank hiked the key rate by more than 1.5 times (by 225bp), which temporarily stopped further price growth. Over the past month and a half, inflation in Russia remained stable at 6.5% y/y, however, the latest weekly CPI data (for the period to 23 August) again showed that inflation has accelerated to 6.7% y/y. Moreover, this happened when the ruble rate was stable: The main reason for the new jump in prices this time was the change in meat and dairy prices (the expected reaction to the rise in grain prices), as well as weaker seasonal fruit and vegetable deflation compared to 2020.
While the inflationary situation worsened, the government announced one-off cash benefits to a significant number of Russian citizens – pensioners and military personnel (about 45-47mn people in total).
37 RUSSIA Country Report September 2021 www.intellinews.com