Document Type: Macro Monthly

Some reasons for optimism into Christmas. Since the US Presidential election and the rollout of the anti-Covid vaccine in November, the ruble has rallied 10% against the US dollar and the RTS Index has jumped 33%. Russia is cited as the second most attractive investment story (cheap, stable, and long-term growth) coming into 2021.

Relief bounce. Russian equity indices and the ruble have recorded double-digit gains since the start of November. This is because of the oil price rally, itself driven by optimism that Covid vaccines will be available early in 2021, and because the decline seen in September and October is deemed excessive by traders.

Moved into active recovery spend phase. The government has moved into the more proactive phase of its plan to restore economic activity to pre-Covid level. The US$100 billion program started October 1st.

Economy less bad than expected. The Russian economy contracted by 8.5% YoY in 2Q20, with weakness in “all areas except agriculture”, according to Rosstat. This decline is better than had been predicted and confirms the recovery trend seen in June, when GDP fell 6.4% YoY.

Presidential bombshell. News in January and early February was dominated by President Putin’s Federal Assembly Address and the subsequent changes in the cabinet. The President committed to additional social spending of US$31 billion over the next four years.

Beneficiary of oil spike. Russia is a beneficiary of the oil price spike following the Saudi attack. But this type of event tends to have a short-lived impact, although it should add to factors supporting Brent close to, if not above, US$60/bbl through winter. Given the budget will break even at US$49/bbl this year, this price average will ensure another big surplus.