Russian Macro: Revising Forecasts Uр
Amid the ongoing global recovery, continuously loose monetary policies in the developed countries, and fiscal stimuli, oil and other commodity prices are likely to secure Russia’s strong current account surplus this year and next despite rapidly growing imports. The federal budget is likely to be in surplus as well – unless expenditures are amended significantly. The country will keep building up international reserves and the key question shifts from securing financial stability toward economic growth, unimpressive in the past decade.
The Russian GDP growth will be around 3.8% in 2021 and moderate to 2.7%-2.8% or so in 2022, with some downside risks in the latter case. This year, however, even stronger growth is possible, driven by household consumption and rapid expansion of consumer debt (which also boosts imports).
Foreign tourism will be still limited in 2021 and the deficit of the services balance will not widen too much. However, it will keep Russia’s inflation high due to greater demand associated with local tourism. Russia will also continue to import rising global inflation amid strong growth of imports. The y-o-y inflation is likely to remain elevated this year, albeit it will decelerate by year-end but still will be over 5.0%. In 2022, inflation will continue going down.
*Russia’s economic performance looked better in early 2021 than reported before. The statistical agency revised up previously published monthly data for services, transportation, and some other segments of the economy. The output of the five basic sectors (industry, agriculture, construction, trade including retail and wholesale, transportation) was up by 3.6% y-o-y in 4M21 as GDP was reportedly down by 1.0% y-o-y in 1Q21.
*As elsewhere, Russia’s growth this year (and likely, next) is going to be fueled by credit. In Russia’s case, it will be fast growing consumer credit, albeit expensive. Next year, amid a likely deceleration of the consumer lending expansion, external demand will become more important for Russia.
*The oil price is expected to be much higher in 2021 than was assumed in the budget prompting an increase of the share of oil-and-gas taxes in total federal budget revenues relative to 2020. The non-oil-and-gas tax collection will be also stronger as well as the actual 4M21 data suggest.
*Russia’s economic policy helped the financial sector to expand much faster than any other sector in Russia amid continuous concentration of assets in state banks. There are reasons to believe that policies are not going to change either in 2021 or beyond.
*Apart from the financial sector, the industry (primarily manufacturing) was the most powerful driver of economic growth in Russia among the most sizeable sectors of the economy. Agriculture also grew much faster than the country’s GDP in the past decade, but growth moderated and will stay moderate in 2021-2022.
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