East Office Quarterly Macroeconomic report for 1Q21
Please find attached the most recent East Office Quarterly Macroeconomic report to find how the Russian economy has fared during 1Q21. East Office will also discuss in the report what are Russia’s future prospects amid pressures for a more sustainable economy and why the momentum for real climate efforts is now.
Recent events in 1Q21 for the Russian economy
Recovery continued in 1Q21. Real GDP contraction narrowed to -1.3 % (y/y) in 1Q21 (vs -2.3 in 4Q20). Manufacturing sectors and retail were the main sectors for the positive dynamics.
Geopolitical pressures weighing on the Rouble despite high oil prices. Threat of new sanctions from the U.S. finally imposed on April 15th, military tensions on the Eastern border of Ukraine induced non-resident investors to pull back funds from Russia but the speed of capital flight is still less than in 2014. At the same time, budget-rule mandated currency purchases by state contributed further to a weaker Rouble.
Inflation accelerating and Central Bank responding with stronger than expected Key interest rate hikes. High growth in food prices ended the consumer price inflation at 5.8 % in March. To alleviate the effect of food price hikes, the state has imposed export bans and price caps on important products such as grains, sugar and sunflower oil. Higher than expected inflation fueled by stronger demand induced the Central Bank to raise its interest rate twice in a row to 5 % in April.
Russian state finances significantly improved due to higher non-gas and oil revenues. Non-oil and gas revenues to state budget have increased by 25 % in 1Q21 due to import and export levies for example for wheat. Oil revenues are constrained by the OPEC+ production cut agreement. The federal budget is expected to be on surplus already this year despite increases in social spending.
Unemployment improving strongly but real disposable incomes declining faster again. Unemployment has decreased across all sectors and unemployment rate is down to only 5.4 %, which is still higher than before the crisis. At the same time, real disposable incomes have contracted faster (-3.5 % y/y) compared to the previous quarter, even though real wages were still growing in 1Q21.
Consumer spending upbeat. Consumer started to spend their unprecedented savings accumulated during 2020 and especially services are expanding compared to a year ago.
Manufacturing and services sentiments positive. Manufacturing and services sentiments are looking stronger as infection levels seem to be low and despite growing rumours of a third wave. Also, consumer confidence has iproved in the last months but still remains lower than before the crisis.