Page 7 - RusRPTJun24

1.0 Executive summary
Russia’s economy was running hot in the first quarter, as inflation pressures build further. The 5.4% y/y rise in Russian GDP in the first quarter was a touch stronger than expected and, taken together with the rise in inflation in April, adds further evidence to the view that the war effort is causing the economy to overheat.
There’s no breakdown of the GDP data yet but the latest monthly activity data show that industrial production and retail sales grew at their fastest annual pace in more than a decade last quarter. We estimate that growth remained strong at more than 1.0% in seasonally-adjusted q/q terms.
Meanwhile, inflation data showed that the headline rate edged up from 7.7% y/y in March to 7.8% in April, with prices rising by 0.5% m/m (in line with consensus). Food and goods inflation rose again last month. Perhaps the main concern for the central bank will be the fairly strong 0.7% m/m rise in core consumer prices, which pushed the y/y rate up from 7.8% in March to 8.3%.
The indicators suggest that the strength of GDP and inflation continued into the second quarter. The manufacturing PMI and the central bank’s business sentiment indicator remained near multi-year highs in April. And the latest weekly inflation figures suggest that Russia is on track for inflation to breach 8.0% y/y in May.
Some slowdown in GDP growth is likely in the coming quarters but the fiscal stance is very supportive and forecasts remains for above-consensus GDP growth of 3.5% this year.
Analysts doubt that inflation will fall as quickly as the central bank expects too, ending this year at 5.3% y/y (central bank: 4.3-4.8%). Against this backdrop, the central bank is likely to maintain its hawkish stance and keep interest rates at 16.00% for some time.
The external situation remains very strong as well thanks to high oil prices and the almost complete failure of oil sanctions to curb Russian sales.
Russia’s foreign trade has stabilized at a new baseline of approximately $100bn in exports and $75bn in imports per quarter. Slightly weaker imports in the fourth quarter 2023, totalling $66.8bn, led to a marginal increase in the trade balance, which now stands at $34.4bn.
The current account surplus more than doubled from $15.6bn in the first quarter 2024 to $31.7bn in April 2024. This significant increase is attributed to declining deficits in services, income, and transfers. The surplus is on track to
7 RUSSIA Country Report June 2024 www.intellinews.com