SITREP. In this monthly, we present a situation report of Russia’s economic, political, business position as of mid‐year. Economic data shows weak growth. The leading growth indicator showed only 0.2% GDP growth in May. Some of this is a calendar effect, but growth for the first five months is running at 0.7% YoY.
Pressure builds. The early June temperature in Moscow was hot and the RTS Index finally recovered all of the loss incurred since mid-2014. That’s the good news. The list of bad, or worrying, news items is considerably longer. This time last year the government kicked off twelve months of public discontent with the pension age reforms but promised all would be better by mid-2019. It is not. The question now is whether the economy can be revived, and start to calm public concerns, or whether people are finally losing patience? If the former, then all will be well. If the latter, then we can expect more pressure on government and on its economic policies.
Economy retreats. The leading indicator was at 0.6% for March, down from the February level of 1.4%, and back at the level for January. Other indicators like consumer spending and real wages are stagnant, which seems to be cancelling out any benefits from higher oil prices.
Spring optimism from the CBR … The Governor of the Central Bank (CBR) appeared to signal the end of winter and the arrival of spring with much more dovish comments after last Friday’s policy meeting when compared to her very hawkish stance of last December. She said that inflation is likely to peak earlier and end the year lower than previously expected and this offers the possibility of a rate cut by year-end. Previously she said this would only happen in 2020.
A tough 1H in store. The mood in Russia is poor. Confidence indicators are weak for both consumers and companies and economic indicators are falling. GDP growth in 1H will be close to 1.0%, at best. Revised forecasts and scenarios. In this report, we revise some macro forecasts for 2019-21 and set out the different scenarios that may result in a worse or better result in the review period.