Page 4 - RusRPTDec19

1.0 ​Executive summary
Russia’s economy turned in strong October data and passed a new conservative budget. ​An upward reversal in consumer demand was the main takeaway from Rosstat’s monthly report published in November. According to official data, in October, retail sales rose 1.6% y/y from 0.7% in September.
Retail had shown a consistent slowdown in growth rates since February,
which underlines the positive effect of the October data. This trend was supported by a spike in household income: in September, real wage growth accelerated to 3.1% from 2.4% in August. After weak dynamics in the previous period, housing construction volumes also rose (11.1% y/y from 2.8% in September).
Growth dynamics in other key sectors of the economy were also positive:​ agricultural output increased by a robust 5.2% y/y last month, industrial production was up 2.6% y/y and construction volumes rose 1% y/y (vs 0.8% in September and 0.3% in August). Fixed investment grew c1% y/y in 3Q19, up from 0.5-0.6% growth seen in the previous two quarters. The only small negative was a slight increase in the unemployment rate (4.6% v 4.5% in September), but this is merely a reflection of seasonality (cuts in temporary jobs in agriculture and construction).
Also, the Duma approved the new federal budget for 2020-22 ​in the third, final reading. The new budget law does not contain any significant changes from the original draft that was submitted by the Cabinet in late September. Despite expected economic expansion, the government’s revenue and expenditure as a % of GDP are projected to fall: from 18.1% for revenue and 17.3% for spending in 2020 down to, respectively, 17.2% and 16.9% in 2022. The government’s fiscal balance will remain in the black: the surplus will stand at 0.8% of GDP in 2020 and 0.2% in 2022. The stringent approach to spending – via continued implementation of the ‘fiscal rule’ – will remain unchanged, allowing the sovereign fund, the NWF, to expand from $167bn in late 2020 to $242bn by YE22.
National projects will account for 9.8% of gross federal expenditures in 2020,​ 10.8% in 2021 and 12.2% in 2022. Moreover, next year, the actual amount of funding in this area could top 14.7%, or Rb3tn, if the government puts to work all unspent money on these projects carried from 2019. However, additional public funding on the economy from the sovereign fund will remain limited: the Duma approved the government’s proposal to spend no more than Rb585bn a year in the next 3 years via the Development Fund – an investment vehicle that will source its funding from the NWF’s surplus.
The macroeconomic headlines confirmed expectations: the Russian economy is starting to recover after the disastrous start of the year, ​while budget planning remains conservative. The main factor, the pace and content of planned budget expenditures for national projects, has also not changed. If this process intensifies, we could see economic growth double already in 2020 (our base case scenario), however, if the government prefers to pursue a stringent spending policy, the Russian economy is unlikely to grow by more than 1-1.5% y/y.
4​ RUSSIA Country Report​ December 2019 ​ ​www.intellinews.com