HIGHLIGHTS • Economic recovery outpacing previous forecasts • No more hopes of melting the ice in US-Russia relations RUSSIA Exceeding expectations: For how long? GDP is back on a recovery track, with growth accelerating across the board and likely reaching 1.6% for the whole of 2017. Economic policy focusing on macro stabilisation doesn’t seek to reinforce this trend. Russian economic activity surprises on the upside, with a strong performance in 2017 (2.5% y/y in Q2 and 1.5% y/y in H1). Suddenly, the official government forecast of 2% growth in 2017, which previously seemed overly optimistic, came within arm’s reach. We, however, still view the current acceleration as quite fragile and expect a steadier upturn of 1.6% in 2017. So far, investment growth outpaced private consumption in H1 2017, signalling a wellbalanced recovery. Going forward, higher growth rates demand a decisive reform agenda, which is well-known but somehow never pursued. The economic policy mix remains quite tight (key rate at 9%, budget spending declines in real terms). The central bank and Ministry of Finance are gradually steering closer to the targets (4% inflation and a balanced budget). The current focus is on macro stability that should help the economy to take the most from structural reforms, if they ever come. 1.6% Estimated GDP growth in 2017 61 Our USD/RUB forecast for end-2017 A new package of US sanctions was received by the markets with relative calm as sanctions are already a new normal for Russia. Now revocable solely with the consent of the US Congress, the sanctions become a very long-term reality for Russia. The persistent hurdle for investment activity that they represent in the medium term will likely be more damaging than their short-term impact. In H2, downside risks for the RUB prevail. Further divergence of CBR and FED monetary policies, a seasonally weaker balance of payments and external debt repayments should send USD/RUB to 61 by year-end, correcting some of the overvaluation seen in H1. Sources: Nordea Markets and Macrobond Tatiana Evdokimova Chief Economist Russia tatiana.evdokimova@nordea.ru +7 495 777 34 77 4194 A / Russian recovery faster than expected Real GDP growth, % y/y RUSSIA: MACROECONOMIC INDICATORS Monetary policy rate refers to the key rate Real GDP, % y/y Consumer prices, % y/y Unemployment rate, % Current account balance, % of GDP General gov. budget balance, % of GDP Private consumption Monetary policy rate (end of period), % USD/RUB (end of period) 2015 -2.8 12.9 5.6 4.9 -3.4 -9.8 11.00 73.1 2016 -0.2 5.4 5.5 2.0 -3.7 -4.5 10.00 61.1 2017E 1.6 4.0 5.3 2.1 -2.3 2.5 8.25 61.0 2018E 1.4 4.0 5.2 1.5 -1.6 2.3 7.50 61.7 2019E 1.5 4.0 5.2 1.5 -1.0 2.0 7.00 62.5 3 / 2017 / Nordea Economic Outlook / 29
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