Russia’s 2021 Outlook: Economy to bounce back amid low base effect
In 2020 Russian GDP is expected to contract less, namely by 3.3-3.4%, than was considered previously – not least due to upward revisions of some of the previously published statistical data. In 2021 the economy can grow about 3.2% - assuming other factors being equal, namely no major deterioration or radical improvement in the pandemic trends, continuous (and even growing) stimulus in the Western economies, and no major collapse in energy prices. To achieve faster growth in Russia looks problematic in the current environment - partially due to the low share of SMEs in the Russian economy (they are less capital intensive and can deliver faster growth rates, but their small role in the economy does not allow the GDP to grow faster). Russia has once more proven its resilience to external shocks, but it has yet to improve its domestic policies and make them more growth-friendly to significantly increase its growth potential. The federal budget deficit is expected to be lower than the government anticipates, and in any case, it is not going to face any problems financing this deficit, which will persist in 2021 as this year domestic borrowing will be well above the current needs of the government.
On the external side, the country’s balance sheet looks strong, as well. As the CBR preliminarily estimated that the current account surplus reached $29.9 bln in 10M20, it is likely that by year-end it may widen to around $37-39 bln, which is a bit more than could have been expected in mid-summer. It looks as though the current account surplus further widened in November as the ruble bounced back and some point fell below 76 per USD, meaning that speculative motives, such as new sanctions, the Navalny saga, and other factors that contributed to the ruble's weakening a few months ago, are being outweighed by fundamental factors. In 2021 the ruble can move closer to 70 per USD.
* The Russian economy contracted by 3.6% y-o-y in 3Q20. No breakdown of the GDP by end-use or production is available yet, but it can be estimated that the 9M20 tally was down by around 3.5% y-o-y. Rosstat has not yet published its official estimate of the seasonally adjusted 3Q20 growth Q-o-Q, but it is clear that this growth exceeded average quarterly seasonally adjusted growth seen in the past – whatever the time frame for the seasonal adjustment is chosen.
* Even though after a strong bounce back in summer the recovery of the Russian economy has slowed in recent months, the October statistics did not look so bad. Retail sales continued to catch up with pre-pandemic levels, and after a 2.1% m-o-m increase in October (not seasonally adjusted), they were down by a mere 3.8% y-o-y that month and by 4.6% y-o-y in 10M20. After a deep fall in 2Q20 by 24.4% y-o-y, non-food retail sales grew rapidly m-o-m and in 3Q20 and in October they were down just by 1.4% and 1.1% y-o-y, respectively.
* Construction remained nearly flat y-o-y both in October and in 10M12 (down 0.1% and 0.3% respectively) and was unaffected by recent restrictions imposed in the aftermath of the growing number of newly infected people.
* Industrial output was down by 5.9% and 3.1% y-o-y in October and 10M20, while September statistical data were revised up – both for mining and manufacturing. Industrial statistics seemingly looked less encouraging in October than in September. At the same time, however, according to Rosstat, seasonally adjusted m-o-m industrial growth was flat as Russia had fewer working days in October 2020 than in October 2019.
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