Economy to flatten in 3Q20 after a shock in March and April

RUSSIA ECONOMICS - In Brief 28 Jul 2022 by Alexander Kudrin

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Rosstat reported that in 1H22, the aggregate output of the five basic sectors was still up by 0.6% y-o-y 1H22, but it was down by 3.4% and 4.5% y-o-y in 2Q22 and June alone. As repeatedly mentioned in the notes of this series, the performance in various sectors of the economy was volatile and uneven, and the same occurred in June. The industry was up by 2.0% y-o-y in 1H22 but down by 1.7% and 1.8% in 2Q22 and June (also y-o-y). Generally, it looks as though industrial output as a whole was already flattening in June as manufacturing was down by 4.5% y-o-y while mining was up by 2.3% y-o-y. In 2Q22, the manufacturing was down by 3.3% y-o-y, while the mining was flat. The extraction of oil and gas increased by 2.6% y-o-y in 1H22. Rosstat reported that seasonally adjusted total industrial output was flat m-o-m in June. Overall, the industrial statistics confirm our earlier expectations that the Russian economy is gradually becoming more primitive – at least for some time, until it accomplishes a divorce with businesses from “unfriendly” countries and establishes some cooperation and trade with the neutral and friendly jurisdictions. On top of that, Russia’s manufacturing remains under the pressure of a ridiculously strong ruble that will continuously torture the tradable sector of the economy and threaten to suffocate it. Eventually, the ruble is likely to weaken, but it will require either much lower energy prices or reduced volumes of Russia’s commodity exports. Agriculture production was stable in 1H, 2Q, and June, having grown by over 2% y-o-y. Construction activity was up by 4.0% in 1H22 but posted a deceleration in recent months, as it grew by a mere 0.1% y-o-y in J...