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10.11.2020 14:29 Russian CPI hits the 4% target, may go higher in the near term

The increase in CPI in October is not surprising, given the ruble depreciation and low base effect of 4Q19, and should be largely discounted by the central bank. But the mounting pressure from agriculture prices and signs of extended fiscal easing at the regional level are watch factors for 2021, which may minimize the key rate downside. The pick-up in CPI from 3.7% year-on-year in September to 4.0% YoY in October is neither dramatic, nor unexpected. Out of the 0.3 percentage point acceleration 0.2ppt are attributable to the low base effect of 2019, which saw a material deceleration in 2H19 on tight budget policy, stable markets, and delayed tariff indexations. The remainder is the continued effect of RUB depreciation, which totaled 2.4% to USD and 1.6% to EUR in October. Given this, and the renewed weakness in consumption, Bank of Russia treats the current spike in the CPI as temporary, which means that this near-term spike in inflation is unlikely to reverse the generally dovish stance of the Russian central bank. Nevertheless, looking deeper at the structure of CPI, and in the newsflow around the fiscal policy we see factors that could potentially worsen the CPI outlook for 2021 and minimize the downside to the 4.25% key rate.

02.11.2020 13:56 Inflation in Russia will remain close to 4% in 2020 and 2021

Bank of Russia kept the 4.25% key rate on higher near-term CPI and market risks. It also maintained its medium-term dovish signal, in line with our expectations. CBR may resume cutting towards 3.5-4.0% if it becomes more evident that GDP and CPI will underperform in 2021, which we find increasingly likely. The decision to extend the tactical hold reflects increased near-term pro-inflationary pressure amid market volatility. The CBR`s year-end 2020 CPI target is slightly raised from 3.7-4.2% to 3.9-4.2%. The CBR quotes recent RUB depreciation and foreign policy uncertainty as the primary cause. We agree that given the recent RUB depreciation by 8% to USD and by 12% year-on-year to EUR in 3Q20, the year-end CPI is more likely to approach 4.0% rather than our initial 3.7% forecast. CBR`s macro forecast remained unchanged for year-end 2021 CPI, with the 3.5-4.0% range reiterated.

25.10.2020 14:36 Russia: Consumption recovery stalls in September

The drop of retail trade in September underpins the halt in the post-Covid recovery, which we also observe on the corporate side. The good news is that the hiccup in consumption likely reflects a higher savings rate rather than a deterioration in the income trend. The bad news is that consumers may remain cautious well into 4Q20. In September, retail trade was down 3.0% year-on-year, which is a deterioration compared to the 2.7% YoY drop seen in August, and a disappointment relative to the -2.1% YoY consensus. Analysts do not take the deepening retail trade drop in September as a sign of material deterioration in consumer strength. To remind, the opportunity to travel to Turkey and several other resort destinations has been reopened to Russians since mid-August, which may have resulted in a 2-4 percentage point drag on the local demand.

28.09.2020 15:15 Andrey Berezin: government support for the development of the Svetlana plant is an important contribution to the region`s economy

The Svetlana company has invested more than 30 million rubles received from the IDF in increasing the production capacity of its subsidiary Svetlana-Electronpribor JSC. Andrey Berezin, Chairman of the Management Board of the Investment Company Euroinvest, noted that such investments are an important case of cooperation between the state and the private sector. Directional means are intended for the production of component parts for microwave devices. The largest monetary contribution was made by the St. Petersburg Industry Development Fund. Earlier it became known that IDF has drawn up new loan programs with a rate of 1% per annum. Under one of these programs, Svetlana received a five-year loan for 30.7 million rubles to purchase equipment. A feature of the new project is an extremely low interest rate in the form of 1% for the first year, 3% for the second and third years, the last two years will cost 5%.

11.09.2020 11:16 Russian Q2 GDP drop not too deep, but broad-based

According to the State Statistics Service (Rosstat), Russian GDP dropped 8.0% year-on-year in 2Q20. This is better than Rosstat`s own initial -8.5% and the preliminary estimates by the Central Bank and the government of -9-10%. Conversely, this is closer to our initial forecast of -7.5%. In addition to the updated headline estimate, Rosstat provided a breakdown by industry, which confirmed a moderate contribution of the most-hit sectors to the overall drop, but also suggested that the negative reaction has been rather broad-based. The sectors most hit by the pandemic and quarantine were, as expected, hotels and restaurants (-56.9% YoY output drop in 2Q20), entertainment, sports, and recreation (-28.0% YoY), and other services (-28.6% YoY). Due to the low share of those in the overall GDP structure, however, they contributed only 0.9 percentage points out of the total 8.0% YoY GDP drop. Since the de-facto quarantine has been eased throughout 3Q20, these sectors should be seeing a rebound, however it is also unlikely to play a major role in the improvement in the overall GDP trend. The primary contributors to the 2Q20 drop were industrial production (-2.1ppt), trade (-1.7ppt), transport and communication (-1.3ppt), caused by a combination of reduced foreign trade and local quarantines. Russia`s continued compliance with OPEC+ commitments and reduced travel should restrain the recovery in industrial production, wholesale trade, and transportation at least until the year-end.

08.09.2020 20:36 Railway cargo turnover in Russia shows signs of recovery in August

Total railways cargo turnover in Russia in August 2020 amounted to 108mn tonnes, down by 1% year on year, slowing the decline down as compared to the previous months and beating the expectations of a 5% decline for August expected by Russian Railways, VTB Capital (VTBC) wrote to clients on September 3. As reported by bne IntelliNews, the pace of recovery is in focus in Russia as a measure of the depth of recession in 2020. Previous months have shown that real sector activity data was mostly suppressed by lower extraction volumes held back by OPEC+ output cuts, while manufacturing and consumer segments recovered faster. Also the rail transportation data in August showed that the 1% y/y decline was mostly due to 12% y/y drop in transportation of oil to 17mn tonnes, and 10% y/y decline in transportation of ferrous metals to 5mn tonnes. At the same time, both construction materials and grain cargoes rose by 1mn tonnes y/y in the reporting period. Despite better-than-expected numbers in August, the Russian Railways monopoly kept its target of a 5% y/y decline for 2020, which implies a 7% drop during September-December. VTBC expects a 3-4% decline for 2020, or a 4% monthly slide on average during autumn and December.

06.09.2020 13:16 Russian EconMin said to improve 2020 outlook

The revised fiscal outlook prepared by Russia`s Ministry of Economic Development for September might include a notable upward revision of GDP forecasts from the previous 5% recession to a 3.9% recession expected in 2020, Kommersant daily reports on August 31 citing unnamed sources. Reportedly, the ministry is encouraged by the faster-than-expected recovery of domestic demand in summer 2020, as well as other economic indicators in 2Q20. As a result, investment is also expected to shrink only by 6.6% in 2020 versus the previous 12% decline expectations. The ministry also reportedly expects GDP to recover to pre-crisis levels by 3Q21. Analysts surveyed by Kommersant daily believe that the upward revision of 2020 macro targets is justified, but note that especially the data on real income recovery is volatile.

06.09.2020 11:59 Russia`s manufacturing PMI back in the black, rising to 51.1 in August

Russia`s manufacturing PMI was back in the black, rising to 51.1 in August from the mild contraction of 48.4 in July and completing the recovery from the index`s total collapse in the second quarter due to the coronacrisis. The manufacturing index crashed to an all-time low of 31.1 in April as the impact of the lockdown of the Russian economy due to the epidemic took hold, according to IHS Markit, which produces the index. The return to manufacturing expansion a result above the 50 no-change mark represents growth is the first gain in over a year and the last of the three indicators to return to the black. Russia`s services PMI bounced back to 58.5 in July, which pulled up the composite index to 56.8 in the same month, despite the mild contraction in manufacturing. The recovery in the manufacturing PMI is not yet reflected in the industrial production index, which was down by 8% in July, but here too the rate of contraction is slowing from -9.4% in June and -9.6% in May. Bank of Finland Institute for Economies in Transition (BOFIT) reports that in some sectors most notably agriculture production has already recovered and is now above its pre-crisis norms; however, retail sales have fallen in all of Russia`s regions except Chukotka.

05.09.2020 12:17 Russia: CPI higher than consensus in August

The lack of monthly deflation in August confirms our take that the pick-up in CPI to 3.6% YoY currently is caused not only by the low base effect, but also by RUB depreciation, higher agriculture prices and a lack of demand constraints. Higher CPI combined with increased market volatility are strengthening the case for an unchanged key rate this month. Russian CPI showed no monthly deflation in August despite seasonality, and the annual CPI rate picked up by another 0.2 percentage points (pp) to 3.6% year on year. This result is in line with expectations, however analysts were on the hawkish side of the consensus range, with most of the market participants expecting 3.4-3.5% YoY. We take the numbers as supportive of our initial take, that the reasons for the acceleration in the CPI, which is likely to take place in 2H20 and in the beginning of 2021, go beyond the statistical base effect.

16.08.2020 13:13 Russia`s GDP fell by 8.5% in 2Q20 due the lockdown quarantine measures

Russia`s GDP fell by 8.5% in 2Q20 due the lockdown quarantine measures imposed across the country reeling from the coronacrisis. The second quarter of the year took the full brunt of the crisis as many industries were shuttered by the restrictive measures in connection with the coronavirus (COVID-19) pandemic. However, the fall was not quite as bad as the corresponding falls in GDP during the previous 1998 and 2009 crises. The decline in GDP in the second quarter, according to preliminary estimates, amounted to 8.5% year on year after growing by 1.6% in the first quarter, according to Rosstat. Rosstat data turned out to be better than the previous predictions from the Ministry of Economic Development, which estimated the drop in GDP in the second quarter at 9.6%, and better than the Central Bank`s (CBR) expectations of a decline of 9-10%. The "quarantine quarter performed better than the crisis in 1998, where the most significant decline was recorded in the fourth quarter of 9.1%, and during the global financial crisis a decade later, where the second quarter was also the worst of the year with a drop of 11.2%. All of Russia`s sectors contracted with the exception of agriculture. The maximum drops were noted in the commodity sector, retail trade, passenger transportation, as well as in industries related to the provision of services to the population. The least affected sectors were manufacturing, construction, wholesale and cargo transportation, as well as in the provision of electricity, gas and steam and air conditioning.


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