Page 6 - RusRPTJun20

And that is the plan: to tap the NWF, but not to run it down too fast ​and source some of the money needed for the budget and stimulus by increasing borrowing on the domestic market. The budget plan calls for $4bn of international borrowing and RUB2 trillion of domestic, but the MinFin has already suggested it will tap the markets for circa RUB4 trillion and after an all time record auction at the end of May it has already reached its second quarter target ahead of time.
Foreign investors have returned to the OFZ market ​after a brief selloff of c.RUB300bn in March that took their share of outstanding bonds to c.30%, however, the subsequent inflows have been so strong they entirely offset the fall in oil prices in April so that while oil lost a third of its value the ruble has been stable and even started to appreciate from a low of RUB80 to the dollar back up to c.RUB71 as May came to a close.
The other macroeconomic numbers have also been surprisingly good.
Russia’s economy grew by 1.6% in the first quarter and it maintained a triple surplus: trade $3.8bn, current account $1.8bn, federal budget 0.2% GDP.
In contrast to the consumer segment, which contracted by 23.4% in April, downward pressures to the real economy in April were far less critical: industrial production fell 6.6% y/y, cargo transportation declined by 6% y/y and total construction volume was down by a mere 2.3% y/y. As expected, agriculture was the only major sector that showed growth: its output accelerated slightly to 3.1% y/y from 3% in March.
While the federal budget will almost certainly go into deficit in the second quarter the outlook for the trade balance and current account has improved.​ The former will stay positive thank to the oil exports where prices are back in the $30s a little sooner than expected, whereas the current account was expected to go negative to some $35bn this year, according to the CBR forecast, but analysts are now speculating that it will remain in the black at c.$45bn, partly due to falling imports, which is half the level of 2019.
Thanks to the much better than expected performance of the ruble, ​that has devaluated by only 20% as of the end of May vs the more than 50% fall in oil prices, the feed through into inflation has been extremely mild. During April and May inflation was essentially zero due the collapse in demand during the lockdown. The CBR cut rates by an aggressive 50bp, banking on the fact that inflation is unlikely to rebound this year, to 5.5% and is expected to cut as much as another 100bp during this course of this year.
Still the outlook for the rest of the year remains painful. ​Russia’s gross domestic product will fall by c.5% in 2020 and will start to recover at the end of the year, Economic Development Minister Maxim Reshetnikov said in a statement published late on May 22 with the government’s latest outlook.
The second quarter will be the worst with a 9.5% contraction in April-June​ before a recovery begins with contractions of 6.5% and 5.2% in the next two quarters before a return to positive but mild growth in 2021.
The people in the street are likely to take the brunt of the slowdown. Russians' real disposable income will fall by 3.8% in 2020, according to the Economics Ministry, return the fall in incomes to its six-year long trend after a very short period of growth in the last quarter of 2019. Unemployment will also
6​ RUSSIA Country Report​ June 2020 ​ ​www.intellinews.com