Page 42 - RusRPTNov21

We forecast GDP growth this year at around 4.5%.
Meanwhile, the recently distributed social payments contributed to a solid 7.6% y/y increase in real income and 8.1% rise in real disposable income in 3Q21. However, real wage growth has been comparatively modest at just 2.2% y/y in July and 1.5% in August (the September data is not available yet). Thus, real income growth is set to slow in 4Q21 unless more social payments are distributed. It is interesting that real wage growth has remained so low despite a drop in unemployment to new record lows of 4.4% in August and 4.3% in September. We attribute this to the increased inflow of migrant workers into the Russian labor market and the pension reform, which increased the working-age population.
All in all, it is clear the period of easy recovery (thanks to the negative output gap closing) is over. Stimulating demand without investing in production will now inevitably increase the inflationary risks. However, the likely slowdown in real disposable income growth in 4Q21 and the ongoing tightening of monetary policy will lead to disinflation in 2022. Now that Russia's economy has essentially returned to where it was at the end of 2019, the main question is what will drive economic growth in the future. Exports will clearly remain an important factor, and Russian exporters strengthened their positions during the crisis. Another important factor will be how effective the investments from the national projects and the National Wealth Fund prove to be.
The Russian economy continued to normalize on a y/y basis, although many sectors started to see stagnation, the housing market being an exception. The GDP growth rate slowed to 3.7% y/y in July vs. 10.5% y/y in 2Q21. The prints from many sectors continued to show a normalization on the production side, while weather conditions negatively affected agricultural production. Retail sales were resilient in August thanks to additional social outlays, and they are likely to have been resilient in September due to further additional social spending from the budget. Elsewhere, consumption indicators pointed to a moderation. We expect the momentum to fade in 4Q21 and 1H22 as consumption stabilizes following the spending of excess savings and slower loan growth due to higher interest rates, although social disbursements could delay this process for a month or so. We see a risk that our FY21 GDP growth forecast of 4.8% y/y drops to 4.5% y/y due to worse-than-excepted prints.
The State Statistics Service has published a GDP breakdown for 2Q21
under the expenditure approach. The headline figure for the quarter remained unchanged from the previous estimate at 10.5% y/y, keeping GDP growth in 1H21 at 4.8% y/y. The most significant growth was registered in household consumption (up 28.1% y/y), investment (12.8% y/y) and imports (31.9% y/y). Government expenditures were up by only 1.0% y/y, while exports contracted by 2.7%.
The GDP growth rate slowed to 3.7% y/y in July vs. 10.5% y/y in the second quarter of 2021. The prints from many sectors continued to show a normalization on the production side, while weather conditions negatively affected agricultural production. Retail sales were resilient in August thanks to additional social outlays, and they are likely to have been resilient in September due to further additional social spending from the budget. Elsewhere, consumption indicators pointed to a moderation. We expect the
42 RUSSIA Country Report November 2021 www.intellinews.com