Russian macro: industry and construction to drive economic growth in 2021
The Russian economic recovery was broad-based in July. Economic growth gathered pace not only in industry, as was published last week, but also in other segments of the economy. The output of the five basic sectors (a monthly proxy for GDP, a kind of a flash estimate) was up y-o-y by 12.0% in June, 13.4% in 2Q21, and 6.7% in 1H21. Construction, trade, consumer services, and especially industry were the main drivers of economic growth in 1H21 and will remain so for the rest of the year.
The Russian economy continues to gradually diversify, and manufacturing is gaining more and more importance, especially after permanent Western sanctions became the “new normal”. Russian industry is gradually becoming an increasingly diversified segment of the economy, and the country’s products are largely used domestically as well as for exports. As a result, the balance of payments has turned less vulnerable to external shocks. The same happened with the budget, which has become less dependent on oil-and-gas revenues. The gradual weakening of the ruble over time appears natural as it prevents the ruble from appreciating in real terms and helps the economy to move along somehow.
* Retail sales were up by 10.9% and 10.2% y-o-y in June and 1H20, respectively. The sector of consumer-paid services grew even faster – 38.3% and 18.7%, respectively. Freight transportation was up by 12.8% and 5.1% y-o-y over the same periods.
* Industry showed 10.1% y-o-y growth in 2Q21 and 4.4% y-o-y in 1H21. Manufacturing grew by 8.6% y-o-y in 1H21, while the mining sector moved out of the recession caused by the OPEC+ deal last year and was flat in 1H21, and the latter is expected to gain pace fast in 2H21. Despite strong base effects these numbers look impressive. Agriculture unsurprisingly remained flat in 1H21, as the harvesting season has not yet fully started.
* Construction activity well exceeded expectations and this segment will be an important catalyst of economic growth in 2021, as it positively affects industry, namely the production of construction materials. Construction was flat in 2020 and was not affected much by the pandemic-linked restrictions, therefore its growth looks very impressive in 2021 – up 15.7% y-o-y in June, 10.7% in 2Q21, and 6.4% in 1H21.
* Construction represents around 5.4% of GDP, and if it can grow by 10% this year or close to that, then it will directly add 50 bps to GDP growth. The seasonally adjusted m-o-m growth (as reported by Rosstat) has clearly accelerated in 2Q21, and the trend is upward.
Now read on...
Register to sample a report