Page 87 - RusRPTOct21

activity continued to grow in Q3 albeit at a somewhat slower pace.based on Bank of Russia estimates, this is largely associated with the return of the Russian economy to a balanced growth path. At the same time, economic trends are diverse across industries and regions.
Growth in real wages and households’ low propensity to save, driven by high inflation expectations, support growth in consumer activity, especially in non-food markets. At the same time, the recovery of the commercial services sector decelerate between July and August due to partially tightened anti-epidemic measures. Growing domestic and external demand and high corporate profits shore up investment activity.
Inflationary pressure from the labour market is intensifying. Demand for labour is growing in many industries. At the same time, some sectors show labour shortages, including due to remaining restrictions on the inflow of foreign labour. The unemployment rate is close to its record lows, while the number of vacancies is at its record highs. The state of the labour market suggests that a further increase in steady growth rates of the Russian economy will primarily conditional on the growth paces of labour productivity.
Inflation risks. Thealance of risks remains significantly shifted towards pre inflationary ones. Their effect may strengthen elevated inflation expectations and corresponding secondary effects.
Further pro-inflationary pressure may have been caused by remaining disruptions in production and logistics chains, labour shortages, as well as structural changes in the labour market caused by the pandemic. An increase in structural labour shortages may cause labour productivity growth to considerably lagehind wage growth.
Pro Inflationary risks remain to be generated by price movements in global commodity markets. Further changes in food prices will largely depend on agricultural harvest in 2021oth in Russia and abroad.
Short-term proinflationary risks are also associated with the stronger volatility in global markets caused in part by various geopolitical developments, which may affect exchange rate and inflation expectations. As the global economic recovery is progressing faster and, therefore, the need is no longer in place for unprecedented accommodative policies in advanced economies, earlier monetary policy normalisation in these countries is possible. This may become an additional source of higher volatility in global financial markets.
Disinflationary risks for the baseline scenario remain moderate. Opening up the orders concurrently with a gradual lifting of restrictions may lead to a recovery in the consumption of foreign services and weaken supply-side constraints in the labour market owing to an inflow of foreign labour force. Further economic recovery maye heldacky,
87 RUSSIA Country Report October 2021 www.intellinews.com