Page 7 - RusRPTApr21

Investment will also continue to recover. Its growth can be quite subdued, as there will soon be no strong need for investment, with capacity utilization at its lowest point in a decade since last spring.
The main economic problem is soaring inflation that has been driven up by rising food prices. Inflation hit 5.7% in February, due to food and the feed through from last year’s devaluation effects, but many analysts anticipate that February was the peak for inflation this year, which is now well ahead of the Central Bank of Russia (CBR) new target rate of 4.25% and will fall from March.
The CBR surprised the market with a 25bp pre-emptive rate hike taking the prime rate to 4.5%, its first hike since 2018 and ending a long easing streak that began after the emerging hike to 17% in the 2014 oil shock crisis.
Where analysts had been expecting a mild increase of 50bp over 2021 those estimates have been increased to as much as 125bp over the rest of this year, depend on a number of factors that are in play including inflation and geopolitics.
The government remains confident that inflation peaked in February but the CBR is taking a very cautionary approach: CBR governor Elvira Nabiullina wore a “hawk” brooch to the March CBR rate hike press conference.
On the consumption side things are no going as well but the outlook for this year is brighter. Russia’s real disposable incomes have fallen to an eight year low as a result of the coronacrisis, falling 3.5% in 2020, according to Rosstat, but the outlook for 2021 is brighter.
Real disposable incomes are down by more than 10% from the 2013 level, the last year of solid growth before Russia’s annexation of Crimea and a slump in world oil prices pushed the economy into recession, the Moscow Times reports.
Economists said the government’s limited — but well-targeted — anti- coronavirus financial support helped soften the blow for the poorest families, although an extra 400,000 households fell below the poverty line last year, the RBC news website reported. The number of Russians now classified as living in poverty stands at 19.6mn.
But the recovery in private consumption will continue, and consumption will return to the level of 2019 and 2014 by 2023. Employment and household incomes are recovering. As in the last couple of years, general government wage increases are projected to remain in line with inflation, while pensions will rise by about 2% faster than expected, in line with the previous decision. The unwinding of household funds accumulated in the recession and the opening up of foreign tourism will add to the turnaround in consumption, according to Bank of Finland Institute for Economies in Transition (BOFIT).
7 RUSSIA Country Report April 2021 www.intellinews.com