Category: Macro Monthly

April was the first month the Russian economy faced the full consequences of the changes to its macro environment. Surprisingly, the data suggests that the effects of the crisis are much milder than expected. This, however, does not mean that the crisis will be softer; rather it means that it will be more gradual and protracted.

March macro data has shown signs of growing weakness in the Russian economy but the YoY contraction in GDP will likely come only in April or May. At the same time, continued appreciation of the ruble will force the CBR to take earlier steps aimed at liberalization of the FX market and a partial removal of capital controls.

The economy remains in a relatively stable condition, although it becomes hard to disregard evidence from various sources that shows a rapid accumulation of problems. The two key problems are in logistics and sanctions-related disruptions to the supply chains of various goods and components.

When we published our last monthly macro update, Russia’s economic prospects were very different from what reality tells us now. The military conflict between Russia and Ukraine has triggered an unprecedently strong and quick reaction from the West. In the two weeks that have passed since the conflict began, Russia’s standing in the global economy has changed from an integrated and important player to a pariah state.

Talk of a Russia-Ukraine war and the threat of new sweeping sanctions from the West has led to a significant cooling of the domestic market and pushed the ruble to the lower edge of its trading band.

Russia has entered 2022 year with a stable economy. On the domestic front, the two key challenges in the macro area are surging inflation and a lack of sustainable and strong drivers for economic growth. However, the biggest risks for the economy are external.

The PMI indicators were mixed in November, with the manufacturing indicator up at 51.8, while the services indicator was down, in contraction territory at 48.4. The improvement in manufacturing is due to general demand recovery, as well as the ending of the negative price effects of supply chain disruption.

In our previous monthly macro-overview, we noted that rising inflation – both local and global – was the biggest challenge for the continuation of a smooth recovery in the Russian economy. However, throughout the past few weeks, the macro-outlook has changed quite dramatically.

Russia’s economic performance this year has been driven by three main factors: (1) the extremely low base of 2020 that explain the big swings in YoY dynamic; (2) the pandemic waves that determine the response of the authorities and consequent restrictions on economic activity; and (3) the major spike in global energy prices.

Sticking With Fiscal Prudence.
The draft 2022-24 budget plans to cap spending in projects and to run a higher level of liquidity in the National Welfare Fund. This will disappoint those that hoped the strong balance sheet and higher oil receipts would lead to more spending.