Russian macro: Emphasis on economic growth the country has been lacking
The Russian economy has somehow weathered the 2020 pandemic storm, avoided a deep recession despite low energy prices and is going to bounce back in 2021. But this year looks challenging as well, albeit in a different sense. The country’s economic growth has looked extremely unimpressive on average after the year 2012 as the country had two years of negative growth – GDP contracted by 2.0% in 2015 and by 3.1% last year.
Based on the currently available data, we hold our 2021 GDP growth forecast at around 3.2-3.3%. By year-end, the economy is likely to return to a quarterly y-o-y growth rate below 3%. Going forward, it looks as though the Russian economy will most likely return to its previous rather moderate growth trajectory in 2022, and the growth rate will not exceed 3% (assuming other factors being equal, such as cautiously rebounding global demand and a gradual easing of the pandemic in 2021).
What will continuously keep Russian growth moderate is the dominance of big companies and a relatively small contribution of small and medium-sized businesses (slightly over 20% of GDP). The latter are usually more adaptable and entrepreneurial.
* It makes sense to look at Russia’s statistics with caution as the data are permanently revised. For instance, Rosstat revised up Russia’s 2018 and 2019 GDP growth rates but kept quarterly national accounts data unchanged so far, making the 2020 quarterly numbers less reliable.
* A reconstruction of the quarterly 2018-19 numbers matching the revised annual data indicates that 1Q20 GDP growth can be estimated as somewhat higher than the officially reported 1.6% y-o-y, and almost no contraction is likely in 4Q20. A substantially better GDP growth number than in mid-year is possible in 4Q20, given a massive increase in government spending/consumption at year-end and improved non-food retail sales.
* Domestically, one cannot expect any significant structural adjustments soon. The administrative hurdles are still in place, interest rates remain elevated, and it is not easy for businesses to expand, i. e., to grow from small to medium-sized and further.
* The budget deficit, however, will narrow in 2021, and the budget is likely to be balanced in 2022 (and even some surplus is possible). Inflation is expected to fall below 4% by the end of 2021.
* The ruble exchange rate has probably settled within a kind of equilibrium if considered on an average annual basis. As seen in recent years, the ruble may be quite volatile within a year, but its deviations from the “economically comfortable” level are now less extreme than before.
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