Russia: Pandemic update

RUSSIA ECONOMICS - In Brief 22 Apr 2020 by Alexander Kudrin

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Economy taking a hitRosstat reported that industrial output was up by a mere 0.3% y-o-y in March, which brought the 1Q20 y-o-y growth figure to just 1.5%. Seasonally adjusted March figure was 1.3% down m-o-m. Mining y-o-y was flat in 1Q20 and down by 1.3% in March, while manufacturing growth in March decelerated to 2.6% y-o-y (versus 3.9% and 5.0% and January and February). These numbers clearly illustrate that the pandemic effects have been felt by the Russian industry in March already. Mining is heading toward contraction for the year as a whole, while manufacturing is likely to follow suit later, as in the following months this deceleration is set to intensify and eventually it will turn into contraction.Rosstat also reported that w-o-w inflation during the period ending on April 20, was at 0.2%, i.e. the same as during the same period before. It is likely that inflation in April as a whole won’t exceed 1.0% m-o-m, which means that there will be no constraints for the CBR to cut the key rate this week (50 bp is what is expected and even more would be desirable). Inflation y-o-y in April is expected to reach 3.3% as in April 2019 it was lower (0.3% m-o-m). However, it will still be below the 4% CBR’s medium-term target, and having a key policy rate at 5.5% and even at 5.25% won’t look too loose policy, as in the current environment monetary policy has to become less restrictive.Policy objectives shifted toward providing support to businesses, including SMEs, which employ around 20mln people. Banks’ lending rates at double-digit levels, as it was and is still the case, is not an environment which can be defined as supportive and business friendly – particularly during...