Page 7 - RusRPTOct20

Preliminary economy ministry estimate suggests that the 12-month change in Russian GDP was 4.3% in August. For the first eight months of this year, GDP contracted by 3.6% y/y.
After an initial rapid recovery, the resurgence in retail sales petered out in August, which, led by food trade, contracted 3% y/y. Recovery slowed down also in trade of non-food goods and other branches of the service sector. Manufacturing output also weakened, dropping by 4% y/y. Unemployment rose slightly, with the unemployment rate reaching 6.4% in August.
The emerging market selloff and rising geopolitical tensions became a weight on the economy, in particular the downward pressure on the ruble.
Russia’s rock solid macro fundamentals have drawn investors into the Russian Ministry of Finance ruble-denominated OFZ treasury bills market and the inflows helped hold up the value of the ruble during the worst of the coronacrisis in May and April: while the value of oil fell from circa $65 in December to a low of $21 in April losing some 40% of its value, the inflows into the OFZ market went a long way to offsetting the fall in hard currency inflows and the ruble fell by a more modest 17%.
However, as geopolitical tensions rise against September the inflows into the bond market have slowed and currency traders have been dumping the ruble ahead of the November US election and the ruble fell to almost RUB80 to the dollar and had already passed RUB90 to the euro as of the end of September. Economists say the ruble is badly undervalued but don't see any chance of it recovering its value until the start of next year when the current tensions fade. In the meantime the weak ruble is proving to contribute as a drag on the economy.
Extractive industries, in contrast, finally began to recover in August. The shift largely reflects a slight easing in the severe cuts in oil production according to the lines agreed in the most recent OPEC+ agreement on production ceilings. Russian oil output in August was still 13% below its August 2019 level, however. Besides extractive industry production, Russian economic growth has been supported by agriculture, which saw August output increase again by 4% y/y.
Going forward and a lot of uncertainty remains over politics but also how the second wave of the coronavirus will develop and oil price dynamics.
In the Economics Ministry’s baseline scenario, oil price grows from $41.8 per
barrel in 2020 to $47.5 per barrel in 2023, and in the conservative one up to
$45. GDP growth in 2021 in these scenarios is 3.3% and 2.5%, respectively, a
difference of 0.4-0.5 percentage points between them remains until 2023.
7 ​RUSSIA Country Report​ October 2020 ​ ​www.intellinews.com