Tellimer

Russia 2021 macro outlook: Three key topics set the landscape

  • 2021 is expected to be a year of economic recovery even if the recovery path is subject to substantial uncertainty
  • We expect a modest recovery of 2.5% y/y for Russia in 2021 which is the flipside of the small contraction this year
  • Budget breakeven oil going from $85/bbl this year to $66/bbl in 2021 is a key pillar of next year’s growth outlook
Russia 2021 macro outlook: Three key topics set the landscape

2021 is expected to be a year of economic recovery even if the recovery path is subject to substantial uncertainty. We stay with a modest 2.5% y/y GDP growth forecast for Russia for three major reasons. The first is that the cabinet plans to tighten budget policy in order to reduce the budget breakeven to oil price to $66/$ while the CBR favors a very cautious monetary policy approach. The second is that part of the unemployment rate increase could be structural and we are cautious on a potential real disposable income recovery. Despite the population being more actively involved in financial market operations, the wealth effect is modest, while debt servicing will continue to increase. Finally, while we expect the ruble exchange rate to come under strong pressure in 1Q21, for the full year we expect the ruble to be anchored near its RUB70-75/$ fundamental range, limiting Russia’s competitive advantage.

We expect a modest recovery of 2.5% y/y for Russia in 2021 which is the flipside of the small contraction this year: Following the economic contraction in 2020, next year has to deliver some growth. The path of the recovery can be expected to be uncertain as the pandemic will continue to affect economies in 1Q21, but a return to normal will take place. Russia did well this year posting a GDP contraction of 3.5% y/y in 9M20 and the full-year GDP contraction can be expected to be 3.8-4.0% y/y. The advantage of running a modest contraction has, however, a flipside: it sets modest potential for catchup growth. For this reason, Russia’s ranking globally for 2021 is expected to be a relatively modest 2.8% y/y GDP recovery, as projected by the IMF, under the assumption of a 4.1% y/y GDP contraction this year (see Figure 1). We foresee an even smaller 2.5% y/y GDP increase for 2021, given our more optimistic view on this year’s result. A strong focus for next year is the second quarter when the base effect will be most important – we foresee 5.8% y/y GDP growth in 2Q21, reflecting a 22% y/y spike in retail trade (see Figure 2).


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