Page 6 - RusRPTFeb20
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While the headline rates of both income and retail turnover were not particularly impressive, both enjoyed a hidden boost from the rapidly falling inflation rate in 2019, which ended the year down from 5% at the state of the year to 3% at the end – the most impressive change to a key macro indicator of the year.
That paved the way to two big rate cuts by the CBR with more expected in 2020. Russia is rapidly moving into the range of “normal” interest and inflation rates. Unemployment too remained low at just 4.6% (both in December and in FY19) is also now in the “normal country” range of values, as the number of employed continues to contract (-0.8% y/y in 2019).
Public spending not a macro driver, yet, but it will be. After a very slow start the government underspent on the national projects by about 6-8%, which resulted in a 1.9% budget surplus. Going into 2020 and the money left over from 2019 will be spent in 2020, plus all the spending planned for 2020 itself. Just how well this money is spent will be a crucial factor and obviously spending for spending sake will not bring much reward. However, the new team in the Prime Minister Mikhail Mishustin’s government has been hired specifically as they are all experienced and talented administrators.
Basic sector output growth in Russia slowed to 1.5% y/y in November from 3.1% y/y the month before, mainly due to a weak reading of industrial production (rose by 0.3% y/y), as well as a poor performance for construction and transportation.
The slow down in the basic sectors in the last quarter is worrying as it suggests that little momentum had been built up earlier in the year was fading again as the year came to a close.
Overall, the data from Rosstat confirms that Russian economic output remained weak in 2019. One of the key reasons is extremely soft domestic demand: while consumer demand started to improve gradually towards the end of 2019, demand in other parts of the economy remained stagnant, as seen in the construction dynamic. Hopes that increased public spending could give a boost to the economy are yet to materialize: according to Finance Ministry, in 2019 the execution of national projects stood at 91.4% of the plan with cRUB150bn of unspent funds transferred to 2020.
6 RUSSIA Country Report February 2020 www.intellinews.com
