德银-俄罗斯-宏观经济-图说俄罗斯：复苏并不平衡，但2018年增长预期改善-20171221-15页_594kb

Summary of Emerging Markets Russia Report (21 December 2017)

Core Content

This report provides an analysis of Russia's economic performance and outlook in the context of emerging markets, with a focus on the third quarter of 2017 and the expectations for 2018. The report is authored by Elina Ribakova, Chief Economist at Deutsche Bank.

Key Economic Indicators and Outlook

Q3 Economic Performance

• Real GDP growth in Q3 was disappointing at 1.8% YoY, a 0.7pps decline from Q2.
• The slowdown was driven by transportation and industry sectors, which averaged 1.1% YoY.
• Retail trade and agricultural output supported growth.
• Household demand showed strong momentum due to rising wages, improving consumer confidence, lower savings (due to declining real rates), increasing household credit, and falling inflation.

November Data

• Retail sales and Industrial Production (IP) growth disappointed, falling 0.4pps and 3.6pps respectively to 2.7% YoY and -3.6% YoY.
• Real wages grew at 5.4% YoY, but real disposable income declined by 0.3% YoY, a positive surprise compared to a -1.7% YoY decline in October.
• Wage-disposable income divergence remains a concern, with disposable income following the trend of pension payments.

Demand Indicators

• Forward-looking indicators of demand improved in November, with consumer confidence and its subcomponents showing positive trends.
• The "personal financial situation during next year" subcomponent saw the steepest increase.

Inflation Trends

• Inflation continued to decline, reaching a new low of 2.5% YoY in November (vs. consensus of 2.5%).
• Core inflation also decelerated to 2.4% YoY (vs. consensus of 2.3%).
• Inflation expectations fell sharply to 8.7% in November (from 9.9% in October), marking a new historical low.
• Food inflation declined but bottomed out in November due to price increases in fruits and vegetables.

Monetary Policy

• The Central Bank of Russia (CBR) surprised the market with a 50bps cut in December, bringing the policy rate to 7.75%.
• The easing was attributed to the extension of the oil production cut agreement, which reduced pro-inflationary risks.
• The CBR is expected to adopt a more data-driven approach as it moves towards a neutral stance.
• Further easing is anticipated in 2018, likely in 25bps steps, with a skewed focus on H1-2018.

Fiscal Policy

• The new 3-year budget aims to reduce the fiscal deficit to 1.3% of GDP in 2018.
• Government expenditures are expected to decline faster than revenues.
• Public sector wages will be indexed to inflation starting in January 2018.
• The budget break-even oil price is expected to fall from USD 60 to USD 40, which is a positive development for Russia's risk premium.

External Accounts and BoP

• Current account deteriorated but posted a small surplus in Q3.
• Trade balance continued to decline, but financial flows improved sharply.
• Reserve accumulation is expected to continue due to recovery in financial flows and small current account surplus.
• FX reserves stood at 345.8 USD bn as of November 2017.
• Non-resident holdings of OFZs (government bonds) reached a record high.
• External debt repayments are concentrated in H1-2018.

Risk and Disclosure Information

• The report includes important disclosures and conflict of interest statements.
• Analyst Certification confirms that the views expressed reflect the personal views of the lead analyst, Elina Ribakova.
• Deutsche Bank provides research products that may differ based on methodology, time horizon, or perspective.
• The report is not an investment recommendation and is provided for informational purposes only.
• Risk factors include macroeconomic fluctuations, currency risk, interest rate risk, and counterparty risk.

Key Figures and Projections

MPC Meetings Schedule in 2018

Conclusion

The report highlights a mixed economic outlook for Russia, with uneven recovery in Q3 and expected improvement in 2018. While growth remains modest, inflation is declining, and monetary easing is anticipated, wage-disposable income divergence and fiscal constraints pose challenges. Financial flows and reserve accumulation are positive, and the budget is expected to reduce the fiscal deficit and lower the break-even oil price, enhancing Russia's risk premium. The report emphasizes the importance of independent investment decisions and disclosure of potential conflicts of interest.