Current account surplus narrowed in 2Q20 but is set to widen in 2H20

RUSSIA ECONOMICS - In Brief 10 Jul 2020 by Alexander Kudrin

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The Russian Central Bank reported that in 1H20, the current account surplus was at $22.3bn, which was a little different from the surplus in 1Q20 ($21.7). This implies that in 2Q20, the current account surplus was at near-zero ($0.6bn). Note that these estimates are preliminary and may change going forward. Overall, it looks as though the current account will remain in surplus in 2H20 as the oil price rebounded, and this surplus may exceed $30bn for the year as a whole (should the oil price remain above $40/bbl for the rest of the year).In 1H20, merchandise exports and imports reached $156.1bn and $109.8bn respectively, leaving the trade balance in decent surplus, even in 2Q20 alone, when it reached $14.3 bn. This surplus enabled to keep in the current account in the positive territory in 1H20, as the traditionally negative services and income balance shrank roughly be a factor of two, compared with the same period in 2019.The Central bank also published foreign trade statistics for May, which indicated that exports contracted by around one-third, while imports decreased by 13.5% y-o-y. Fiscal rule and FX interventions helped the ruble to stay stronger than it could have been amid such a deep contraction of the price of oil, and the ruble volatility was contained.Based on the estimated 1H20 balance of payments and foreign trade data, it can be concluded that exports somehow rebounded in June, but still posted contraction y-o-y, while imports contracted a bit more.As the oil price exceeded $40/bbl and approached Russia’s breakeven level, i.e. at which the fiscal rule is being applied less aggressively, so that FX interventions subsided, the ruble weakened in early July....