Page 5 - RusRPTFeb22

1.0 Executive summary
Russia’s macro indicators end 2021 in good shape as the economy recovered quickly from the double whammy of coronacrisis and an oil price shock.
And the stock market was booming until geopolitical fears over a possible Russian invasion of Ukraine appeared at the end of October, which have dominated the Russian investment story ever since. Heightened fears of sanctions have weighed on Russia’s market confidence since December and caused a significant withdrawal of non-residents from local financial instruments.
As of end-December, the share of non-residents in the OFZ market had fallen to c19% of the total – a 6-year low and down from the peak of 34% set in March 2020.
However, while the Russian financial market has been under pressure since end-2021, economic indicators, supported by strong oil price growth, have remained healthy and even surprised to the upside.
That has resulted in the reappearance of a triple surplus of trade, current account and federal budget. The current account surplus ended 2021 at around $120bn – an all time high – which is easily enough to cover the $40bn of OFZ owned by foreign investors so if they depart the federal budget will barely be impacted. At the same time the monetary reserves topped $630bn in January, enough to cover Russia’s entire external and public debt, making the country impervious to sanctions.
The economy has responded to these stimuli by picking up, but not booming.
According to Rosstat, industrial production grew 6.1% y/y in December – above consensus expectations, or 4.5%. Thus, in 2021, industrial production rose 5.3% y/y and completely recouped its losses in 2020 (-2.1%).
Despite the strong figure in 2021, the structure of growth shows an increased dependence on the commodity extraction sector – over the last consecutive months, its growth has been in the double digits (partly explained by the base effect), while output growth in manufacturing has slowed from an average 5.2% growth for 9M21 to 4.3% in December.
In January, growth in the commodity extraction sector is expected to continue to outpace output growth in manufacturing, which according to PMI (51.8 in January vs 51.6 in December) is likely to remain flat.
5 RUSSIA Country Report February 2022 www.intellinews.com