11.11.2020 18:45

East Office Quarterly report for 3Q20: Recovery slowing down amid rising uncertainty

Growth of COVID-19 has surged again to new highs of over 21 000/daily confirmed infections.
The level of infections is not directly comparable to the Spring levels as Russia is conducting nearly 600
th tests daily. Also, the positivity rate still remains at a relatively good level of 4 %, which could however
be reversed fast.

Real GDP decrease in 3Q20 halved from the last quarter and estimated at -3.8 % (y/y). Recovery
was advancing fast in July but started to decelerate in August and came to a near halt in September.

Decline in industry deepened in September. Manufacturing was recovering nicely in 3Q20 (-0.4 %,
y/y) but prospects worsening again in September. Extractive industry decline deepened due to a
weakening oil price and the OPEC+ production cut agreement.

Rouble depreciated to its lowest level since Dec 2014 in October but started to moderately
appreciate after the U.S. presidential elections. Rouble weakened considerably in 3Q20 as the
threat of new sanctions and other geopolitical tensions intensified and due to negative news from EU
area recovery. Most forecasts, however, see strengthening ahead for the end of 2020 and 2021 and
view the Rouble as undervalued.

Inflation moderately accelerated to 4 % in October due to a weaker currency. Inflation is currently
exactly at the CBR target rate but expected to decelerate towards the end of the year due to new
coronavirus restrictions that will constrain consumption demand.

Sentiments in industry worsening again after Summer recovery. Sentiment in manufacturing
industry turned to negative in September and darkened further in October while services sentiment
remained moderately positive.

Real monetary incomes down -3.6 % but real wages still growing in 3Q20. Real disposable
incomes contracted by -4.8 (y/y) in 3Q20 (vs -8.4 % in 2Q20).

Mortgage market is experiencing a boom in Russia due to a generous state support system, lower
CBR key interest rates and a relative lack of alternatives for investment. The boom has raised worries of
over-heating in the housing market and Central Bank is following the situation closely.

Unemployment decreased marginally in September but could be only short-lived. The number of
unemployed still remains 40 % than a year ago and the unemployment rate stands at 6.3 %.