Page 37 - RusRPTJul22

I would like to emphasise that the decline in prices for certain goods in April—May offset their surge in March only partially. Specifically, prices for computers, TV sets, washing machines, and smartphones dropped by 9–17% over the two months, after soaring by 15–46% in March.
An important sign of a stabilising situation is that households’ inflation expectations are returning to the levels of the previous year. Answering the question about the reasons for lower inflation expectations, people noted that ‘the strong wave of price growth has already passed’ and a deficit of fast-moving consumer goods has been prevented.
Companies’ price expectations also continued to decrease, returning to the level of the end of 2021. Among the reasons, businesses mention both a slower rise in costs, including due to exchange rate movements and lower prices for motor fuel, and a weaker demand for their products. However, enterprises’ and households’ expectations are still notably above the levels observed when inflation was close to 4%.
Considering these trends, we decreased our inflation forecast for 2022. We estimate that price growth will equal 14–17% as of the end of the year. The forecast for 2023 remained unchanged, namely 5–7%. Further on, inflation will return to the target.
Second. According to our assessment, the decline in economic activity discontinued in May. Speaking of external trade, export quantities contracted less than we expected in April, whereas import trends were generally in line with our estimates. Today, most companies engaged in external trade are facing problems. These bottlenecks are associated with establishing relations with new suppliers, making payments, searching new target markets, and delivering goods via new routes. Debottlenecking will take a long time. Moreover, there are still risks of secondary sanctions.
Economic trends across industries are still diverse. Heterogeneity has increased. On the one hand, we can see local improvements, according to recent figures, including survey results. In particular, the Business Climate Index we started publishing in June shows that companies have been expressing less negative estimates of the current and future economic situation for two consecutive months. Enterprises in those industries where import substitution processes are more active report more notable improvements, for instance, in pharmaceuticals, certain machine building sectors, and metal processing. The situation in agriculture is generally stable. On the other hand, those industries where external trade plays a key role record a contraction of output. These are export-oriented companies (namely, the oil and gas sector, wood processing, and coal mining) and enterprises critically dependent on imported equipment and components (including car makers and other assembly plants). Another bottleneck is enterprises’ dependence on the maintenance of foreign production lines, machinery, and other equipment.
37 RUSSIA Country Report October 2020 www.intellinews.com