Russia Country Report Dec21 - December, 2021

December 6, 2021

The Russian economy continues to rebound, but the pace of recovery has slowed down, according to Russian Accounts Chamber.

The Russian economy grew 4.3% y/y during the third quarter, but the post-coronavirus recovery is almost over. The solid 3Q21 figures were likely due to the still strong but waning momentum in retail and wholesale trade, manufacturing, and freight and passenger turnover, according to Sova Capital.

At the same time, mining and quarrying along with the financial sector likely did better than in 2Q21, but at the same time most indicators saw their growth rates halve in 3Q21 vs. 2Q21, while the growth rates for retail and wholesale trade were four times lower. Still Russia is on course to put in 4.2% for the full year.

While this is best growth for several years, the Accounts Chamber worries that without the investment and reform Russia will soon revert back to its stagnation level growth of about 2% a year. The Kremlin continues to push its 12 national projects, but it has been battered by numerous external shocks that have prevented the programme from building up any momentum.

As bne IntelliNews Russia report went to press new shocks in the form of dramatically increased geopolitical tensions with the US over a Russian build up of military forces on the Ukrainian border and the appearance of the Nu variant of the coronavirus (COVID-19) had appear that threaten Russian growth in both the short- and medium-terms.

Russia was only just starting to emerge from a forth wave of the pandemic in November that saw death rates rise to over 1,000 per day – the highest level since the pandemic started – when the Nu variant appeared. The population remains only 30% vaccinated and is very vulnerable to yet another wave. Although the Kremlin is very unlikely to impose another lockdown because of the economic damage it causes, if the new variant is virulent then the health system is like to be put under great pressure again.

As for the war talk, a full scale invasion of Ukraine is very unlikely according to experts, partly as the reported 92,000 troops is not actually enough to invade and take Ukraine, let alone hold it once captured, but more because it lacks any support from the population and Russian President Vladimir Putin’s is unlikely to risk his personal popularity as a full military campaign would result in thousands of Russian deaths for little perceivable gain. The popular support for the annexation of Crimea remains a very steady 86%, according to independent pollster the Levada Center, whereas the military action in Donbas only has a 25% approval rating and that has been falling in the last year.

The good news is the commodities boom of the last year, especially the recovery of the oil price to over $80 per barrel, has replenished the state’s coffers and the reserves are currently at an all time high of $626bn.


The Russian federal budget expanded the surplus to RUB2.1 trillion ($29bn) in 10M21, adding RUB0.5 trillion in October alone, beating the consensus expectations of a RUB1.8 trillion surplus for the reporting period, according to the latest report by the Finance Ministry. As followed by bne IntelliNews, Russia’s federal budget is looking in far better shape than anyone had predicted.

Despite the large reserves and strong income, the Kremlin continues to run an austerity budget and is husbanding its money for a future fall in hydrocarbon income. The government has spent money on social support programmes that have pushing average real income growth back into the black, but over all spending on social items and healthcare has remained below the relative seasonal norms since September, despite the social allocations for 2021 increasing by RUB160bn.

The government continues to diversify its revenue base with personal and profit taxes together with VAT making up a third each of the tax base, but some 20-40% of revenues are still dependant on raw materials and that revenue is likely to fall slowly in the next decade. However, in the short- to medium-term the Kremlin will have plenty of money in the bank.

The main economic problem in the short-term is still the higher than expected inflation rates. The CBR raised the key rate by 75bp in October to 7.5% as inflation has failed to respond to a string of hikes this year, but according to preliminary data at the end of November analysts believe that inflation may have peaked, although there are unlikely to be any rate cuts until the middle of the new year, say analysts.

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