Russia Macro Monthly Report for September 2017: How long will the positive momentum last?

Please find Russia Macro monthly report for September 2017, prepared by Chris Weafer, Senior Partner at Macro-Advisory Ltd from Moscow. Short summary of the report:


How long will the positive momentum last?

Recovery strengthens. Rosstat reported 1H GDP growth of 1.5% and Q2 at 2.7%. The question is whether 2Q was a one-off or a new trend.

VEB disagrees with EconMin optimism. VEB’s Chief Economist publicly disagrees with the optimism from the Economy Minister and expects growth to shrink to 1.4% in the second half of this year.

Agriculture expected to pick up. The indicators are that Russia will have another record grain harvest this year and will reclaim the position of the world’s largest wheat exporter.

Confidence numbers suggest recovery has peaked. Official business confidence numbers fell from -1 to -2 in July. The PMI manufacturing index fell, indicating there is still growth, but at a slower rate.

Inflation continues to fall. Year-on-year inflation fell to 3.3% at the end of August, from 4.4% at the end of June. Food price deflation was the main driver as food inflation dropped to 2.3% YoY.

CBR cut the key rate to 8.5%. The decline in inflation allowed the CBR to make a 50-bps cut to the key rate at the 15 September policy meeting. The CBR indicated that it is likely to cut further during the next two quarters.

Deteriorating US-Russia relations. Russia and the US traded tit-for-tat diplomatic restrictions, of the sort seen in the Cold war. The moves are serious but, are unlikely to lead to serious escalation.

Waiting for sanctions clarity. It is hoped that in late October the OFAC will provide some clarity and guidance on vaguely worded sections in the 2 August sanctions law. Businesses have asked for clarity with regard to Russian Railways, in particular.

Local elections show some surprises. There were big opposition gains in Moscow, but not elsewhere. Turnout was low for the elections of ten governors, where the United Russia candidates won.

Markets shrug off Otkritiye failure. The RTS Index advanced 8% in August, despite the rescue of the largest private bank, Otkritiye, and the US sanctions. Valuations have fallen so low that Russian equities are a high-beta theme in emerging markets. Year-to-date, Russian indices are badly lagging both the MSCI EM and Word Indices.

Highest level Saudi visit. It is reported that a delegation from Saudi Arabia, which will visit Moscow on 5 October, will he headed by the King. That has raised speculation that at least one major deal may be agreed.

Reforms continue in Uzbekistan. The fast pace of reform continues, with the ending of the dual-currency rate system and an end to the border dispute with Kyrgyzstan. See our report “Playing catch-up is neither a sprint nor a marathon”.


Download here the full report in PDF format.


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