Russia Macro Monthly Report for November 2017: The calm before the … what?

Please find Russia Macro monthly report for November 2017, prepared by Chris Weafer, Senior Partner at Macro-Advisory Ltd from Moscow. 

weaferShort summary of the report: 

Economic advance continues. The economic recovery continues to strengthen and expand, albeit modestly. September GDP rose 2.4% YoY, bringing the growth for 9M17 to 1.8% YoY. The agriculture sector is a big driver, recording 8.5% growth in September (+4.7% YoY in 9M). There is also a stronger-than-expected recovery in retail sales.

Modest upgrades. Several agencies, such as the World Bank, IMF and Fitch, have modestly upgraded their forecasts for 2017-19. The Economy Ministry is the most bullish but still quite modest, with expected growth rising to 2.3% YoY in 2020.
Waiting for guidance. Uncertainty over the outlook for 2019 and beyond arises because of the lack of clarity over what will be the next government’s priority fiscal and industrial policies and who may lead the government.
Mixed confidence sentiment. The Business Confidence indicators are generally positive. But a separate report showed that businesses are becoming less inclined to commit to investment because of uncertainty beyond the medium term.
Sanctions threat. The 2 August law is promising a new list of sanctions targets (section 241) early in the new year. The recent sanctions clarification provided nothing new but shows the determination of US Congress to increase pressure on Russia.
Inflation and rates fall. Inflation continues to fall faster than expected and that should allow the Central Bank to cut its benchmark rate again in mid-December. But many of the contributors to the inflation fall are one-offs and CPI is expected to turn up again.
Ruble-oil correlation broken. The historic close correlation between oil and the ruble-dollar rate has now been broken because of the mechanism of the Fiscal Rule.
Russia is wary of rising oil. In this report we outline why Russia is more comfortable with oil below US$60/bbl, despite the extra tax revenues generated.
The loyal and irrelevant opposition. Kseniya Sobchak has generated a lot of international media attention with the announcement she will contest the March 2018 election. Polls show her only getting 1% of the vote with Putin expecting 65%. Putin is expected to deliver his annual televised Q&A in mid-December, even if the Federal Assembly Address is delayed to the new year.
Investors are also waiting. Despite the gain in oil and stalled and underperforming. Partly, this is because of the volume of new issues but mainly it is due to the number of uncertainties to be clarified. 

Download here the full report in PDF format.


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