Page 6 - RusRPTNov21

1.0 Executive summary
The Russian economy continued to normalize on a y/y basis in September, with the GDP growth rate slowing to 3.4% y/y during the month vs. 3.7% y/y in August. Russia’s 3Q21 GDP growth is estimated at 4% y/y vs. 10.5% y/y in 2Q21.
All in all, it is clear the period of easy recovery (thanks to the negative output gap closing) is over.
The Ministry of Economic Development estimates that Russia’s GDP grew 3.4% y/y in September vs. 3.7% y/y in August and 4.9% y/y in July.
Overall, the ministry estimates Russia’s 3Q21 GDP growth at 4% y/y, which is close to our updated expectations (+4.2% y/y).
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.
Basic sector output growth slowed to 4.4% y/y in September, down from 7.1% in July and 4.8% in August. After seasonal adjustment, m/m growth in September was just 0.5%, not enough to fully offset the 0.7% decline in August.
This meant that basic sector output growth came in at 5.4% y/y in 3Q21, down rather sharply from 13.5% in 2Q21, the quarter when overall economic output moved past the pre-Covid level and the gap in potential output, which emerged in 2Q20 during the lockdown and consequent sharp correction in economic activity, closed in most industries (excluding entertainment).
The September figures show a strong y/y and SA m/m performance in the production segment thanks to crude oil and natural gas production.
Demand for goods remained strong due to higher incomes, as well as due to loan growth remaining strong on the back of real interest rates remaining low.
But analysts expect Russia’s economic performance to weaken in 4Q21
due to less business activity as COVID-19-related restrictions affect the real economy (to a lesser extent) and services sector (to a larger extent). As a result, Russia’s 4Q21 GDP growth could be 1.7% y/y, putting the country’s FY21 GDP growth at 3.8% y/y.
Industrial production (IP) bounced back in September, showing higher-than-expected growth rates. IP growth accelerated to 6.8% y/y vs. 4.6% y/y in August (Bloomberg consensus was 4.6% y/y) following an uptick in mining and quarrying (+9.5% y/y in September vs. +6.6% y/y in August).
6 RUSSIA Country Report November 2021 www.intellinews.com