Page 6 - RusRPTJul22
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1.0 Executive summary
The effects of sanctions against Russia have been less acute than expected so far, Central Bank chief Elvira Nabiullina said on June 17 at St Petersburg International Economic Forum (SPIEF) and she is right. While the sanctions are clearly very painful, the economy has stabalised and many of the indicators are starting to recover.
The latest Russian data for May suggest that activity, having declined sharply after Western sanctions were imposed in March, has started to stabilise. Some sectors of manufacturing have benefited from a shift towards domestic production. On balance, the fall in Russian GDP this quarter looks like it will be in the order of 10% q/q, not the 15% q/q analysts had previously expected.
Overall, the latest data for May suggest that Russian economic activity, which had declined sharply since March, has now largely stabilised and that output in some sectors has started to recover. Analysts don’t expect a strong recovery from here but, given that the retail and industrial sectors represent more than 40% of Russia’s economy, it now looks very likely that our forecast for a 15% q/q fall in Russian GDP in Q2 was too pessimistic. On balance, it looks like it may be no larger than 10% q/q.
The most noticeable is the exchange rate with the Russia strengthening from a nadir of RUB133 to the dollar in the first days of the war to RUB51 at the end of June – a level not seen since 2008 – and making the ruble the best performing currency in the world.
However, as Central Bank of Russia (CBR) capital controls remain in place, and notably foreign investors remain trapped in the bond and equity markets, the exchange rate is artificial. Should those controls be dropped than over $100bn could flee the country overnight leading to a collapse in the value of the ruble.
Indeed, as bne IntelliNews reported, Russia is suffering from a bad case of the Dutch Disease as massively profitable oil and gas exports have coupled with a collapse in imports, made worse by sanctions and self-sanctions, that have driven up the value of the ruble to well beyond its fair value of somewhere between RUB60 and RUB70 to the dollar.
More concrete progress was made in oil production which started to grow again in June, up to 10.7mbpd after dropping in the first months of the war due to sanctions. That is a major success as
6 RUSSIA Country Report October 2020 www.intellinews.com