Page 6 - RusRPTJun19

inflation. This should support consumption in the second half of the year and will also make it easier for the CBR to cut rates. Rosstat estimates that real incomes fell by 2.3% y/y in the first quarter, while industrial output rose by 2.1% and is forecast to end the year at 2.3% -- a decent, if unexciting, result.
All-in-all the first quarter produced mixed results and the introduction of the new VAT rate produced some distortions to the economy that are expected to wear off relatively quickly. The CBR and the business press believe the growth slowdown is temporary. In the most hopeful scenarios, the launch of large state investments in national infrastructure, healthcare and education at the end of the year will spur higher economic growth next year.
Politically president Vladimir Putin is getting frustrated with the slow pace of implementation of the national projects and chewed out deputies on live TV. The introduction of the programme is an existential issue for the president who saw his trust rating fall to an all time low of 31% in May, down from over 75% a few years ago – its lowest level ever. Putin’s approval rating remains over 60%, but the falling trust rating implies that the national projects must be made to work or the Kremlin will face growing levels of social unrest. It also suggests that while the people to keep Putin in power for now, when his term ends they want a new president.
The external trade balance remains positive and Russia continues to run a triple surplus of trade, currently account and federal budget. After finishing last year with a whopping 2.7% federal budget surplus, Russia is on course to run a 2% budget surplus this year as well.
The trade balance remains positive but was under a bit more pressure in the first quarter. Russian customs reports that Russia’s goods exports, measured in dollar terms, rose a mere 1.4% y/y in the first quarter of this year versus a gain of 25% in the same period in 2018. The dollar value of goods imports fell by 2.4% (up 4% in 2018).
Ruble weakness has depressed Russian spending on imports, which has boosted the current account surplus, but is not in itself a healthy way to increase the surplus. Part of this poor picture for Russian import developments stems from the use of the dollar as a unit of measurement. Measured in euros, goods imports to Russia rose over 5% and about half of Russia’s imports comes from Europe.
The volume of exported crude oil increased by 7% y/y (compared to 3% growth in 2018), while the volume of oil products shipped fell by 7% (exports were virtually flat in 2018). Oil exports will be hit by the contamination of millions of barrels of oil with chlorine that has disrupted the entire supply chain. The disaster will rumble on for months and is already estimated to have cost Russia over $1bn in damages.
Growth in natural gas exports stopped, but exports of liquefied natural gas (LNG) continued to rise. The value of energy exports overall increased by 3.6%.
6 RUSSIA Country Report June 2019 www.intellinews.com