East Office Quarterly report for 2Q21 and updated East Office scenarios up to 2030

Please find attached the latest East Office Quarterly report for 2Q21 and updated East Office scenarios up to 2030. Report analyses the latest macroeconomic developments for the first half of 2021 and what are the alternative outcomes for Russia up to 2030.

Key takeaways

Recent events in 2Q21 for the Russian economy

  • Russian economy reached above pre-pandemic levels in June. According to first estimates, the Russian real GDP grew by 10.1 % (y/y) in 2Q21 driven by non-extractives such as manufacturing and recovery in household demand.

  • Geopolitical pressures on the Rouble have stabilized but still luring in the background. Despite a surge in oil prices, the Rouble has not strengthened accordingly, which points to strong opposite tendencies that maintain capital outflow. Easing of the OPEC+ oil production cuts is moderating the Rouble’s appreciation potential

  • Inflation accelerating to new highs that could hamper recovery. Consumer price inflation has accelerated to 6.5 % in June - highest level in 5 years. Increase in food pries has stabilized, whereas non-food products especially imported goods are raising inflationary pressure.

  • Central Bank has raised the key interest rate by 1 %-point to 6.5 % in July. If inflation levels especially in foods continue to stabilize, the key rate is expected to remain at the current level. Large risks to this forecast remain from extreme weather conditions to the Duma elections.

  • High inflation in input prices for industry hampering production due to global supply shortages. Input prices for industry are 31 % higher than a year ago and causing disruptions in production, especially in production dependent on imported inputs.

  • Unemployment 22 % (y/y) lower in June. Due to fast recovery in the economy as a whole unemployment rate is already below 5 % in 2Q21 and strong recovery is expected to turn to labour shortage unless immigration recovers.

  • Real incomes growing by 7.7 % (y/y) in 2Q21 and real disposable incomes by 6.8 %. Purchasing power remains below pre-pandemic levels but fast recovery in the jobs market is supporting further improvements despite higher levels of inflation.

  • Shortage of labour force in many sectors could become a serious bottleneck already in 2021. Lack of immigrants in many sectors as well as serious demographic situation is overheating the jobs market.