Page 6 - RusRPTOct21

1.0 Executive summary
Rosstat revised its 2Q21 GDP estimates up to 10.5% y/y in the quarter, up from the preliminary estimate of 10.3% y/y. The growth was the highest since the economic bounce back in 2000, following the 1998 financial crisis. The economy returned to growth in March of this year following contractions in January and February; overall GDP fell 0.7% y/y in 1Q21.
After the significant rise in 2021 H1, economic growth slowed down at the beginning of the third quarter, closer to the pre-pandemic rate. The growth rate trended downwards due to the remaining supply-side constraints, namely disruptions in raw materials and components supplies and the gradual exhaustion of the potential to restore demand in increasingly more industries. Russia's total output reached pre-crisis levels in the second quarter,but the recovery has levelled off in recent months.
The recovery in Russian industry went into reverse in Q3. Production rose by 4.7% y/y, but it fell by 0.8% in seasonally-adjusted month-on-month terms. This marked the third monthly contraction in a row and left output 1.2% below its level in May. The manufacturing sector has stagnated since it returned to its pre-pandemic level at the end of last year and the latest surveys do not suggest a turnaround is imminent.
In contrast, retail sales performed well. Sales growth picked up from (an upwardly-revised) 5.1% y/y in July to 5.3% y/y in August. We estimate that this was equivalent to an expansion of 0.6% in seasonally-adjusted month-on-month terms, an acceleration from the rates of 0.3-0.4% m/m in recent months.
Surprisingly, most of the strength reflected a pick-up in food sales. It’s possible that part of this reflects the cash handouts to families in August ahead of last month’s elections, with households using these handouts for spending on food amid high prices. Additional handouts to pensioners last month (total giveaways amount to 1% of GDP) suggest that sales growth should remain strong at the start of Q4.
Russian government on course to end the year with a RUB1 trillion ($13.7bn) surplus, thanks to soaring revenues fromoth energy exports and non-oil tax revenues. The government is currently preparing the 2022-24udget and an updated version of the budget for this year. The economic bounce back and high commodity prices have delivered the Russian budget a windfall and revenues are soaring.
Russia's GDP is projected to grow by more than 3.5% this year from the
6 RUSSIA Country Report October 2021 www.intellinews.com