East Office Quarterly Macroeconomic report for 4Q20
Russian economy seems to have out-performed most forecasts in 2020 as real GDP decline is estimated at only -3.1 %. Russia’s relatively small service sector and low share of SMEs as well expansive state policies have shielded Russia from any further damage. Read more about report.
Development in the industrial sector has been mixed: extractive industry deep-dived by -7 % due to low commodity prices and the oil production cut agreement, whereas positive tendencies were witnessed in manufacturing (+0.3 %) with strongest performance in chemicals (+8.8 %) and food processing (3.1 %).
Rouble kept weak by rising geopolitical tensions despite rising oil prices. Global oil prices have recovered more strongly than previously anticipated in the end of 2020 but rising geopolitical tensions, most lately related to the arrest of Aleksey Navalny, have induced foreign investors sell their Russian assets.
Inflation speeding up due to high food and gasoline prices as well as a weaker Rouble. Consumer price inflation accelerated to 4.9 % in December 2021 due to large hikes in certain food product such as sugar and sunflower oil to such an extent that the government decided to impose price caps and export bans on certain products. In January, drivers for an accelerated inflation levels were found in non-foods especially due to higher gasoline prices and a lagged effect of the weaker exchange rate.
Russian state has used 4.5 % of GDP in crisis stimulus despite a 34 % drop in oil and gas revenues. The state budget ended the year with a 3.8 % deficit (vs 1.9 % surplus in 2019), which was mainly funded from domestic sources. Russia also managed to raise the value of its National Welfare Fund to 11.7 % of GDP.
Sentiments in manufacturing and services upbeat as vaccinations are progressing. Expectations in manufacturing and services rose to the positive side in January after more negative tendencies during the second wave of infections in the Autumn.
Real disposable incomes decreased by -3.5 % (y/y) in 2020. Largest hit in real incomes resulted in entrepreneurial incomes, whereas real wages remained close to last years levels despite stronger inflation in the end of the year. Real disposable incomes were in 2020 -10.6 % of the 2013 levels and poverty has increased by approximately 400 th. people in 2020.
Unemployment has continued to decrease after reaching its peak in 3Q20 and unemployment rate stand at 6.1 % in the end of 2020.