德银-俄罗斯-宏观经济-图说俄罗斯：增长回暖-20180223-15页_651kb

Summary of Deutsche Bank Markets Research: Emerging Markets - Russia

Core Content Overview

This report provides an analysis of Russia's economic and financial situation as of February 23, 2018, focusing on GDP growth, inflation trends, central bank policy, fiscal developments, and the banking sector's performance.

Key Economic Indicators

• GDP Growth:

  • Russia's 2017 annual GDP growth surprised on the downside at 1.5%, but it was the first positive full-year reading in three years.
  • Q4 growth slowed to about 0.8% YoY, down from 1.8% YoY in Q3.
  • High-frequency indicators suggest a recovery in economic momentum for Q1-18.

• Consumer Sector:

  • Private consumption and GCF (gross capital formation) showed the first positive readings in three years.
  • Real wage growth reached 6.2% YoY, above market expectations.
  • Real disposable income growth also surprised on the upside, with retail sales volume at 2.8% YoY.
  • Consumer confidence indicators have improved, supporting the retail trade sector.

• Inflation Trends:

  • Headline inflation fell to a historic low of 2.2% YoY in January 2018, driven by declining food prices and ruble strength.
  • Inflation is expected to continue declining in H1-18 due to base effects and ruble strength.
  • In H2-18, inflation is projected to rise to 3.2% YoY as domestic demand pressures increase.
  • Inflation expectations remain high at 8.9% YoY in January 2018, posing upside risks to inflation.

Central Bank Policy (CBR)

• The CBR eased the policy rate by 25bps in February 2018, bringing it to 7.50%.
• The central bank communicated a more dovish stance, citing sustained low inflation and falling inflation expectations.
• It is expected that the CBR will continue to ease rates in H1-2018, targeting a policy rate of 6.25% by the end of the year.
• The relationship between oil prices and the ruble has broken down due to the implementation of new budget rules.

Fiscal Policy

• The federal budget balance for 2017 was RUB 189.3bn, with the deficit expected to decrease to 1.4% of GDP in 2018.
• Fiscal policy remains tight over the medium term, with a declining share of oil in the fiscal balance.
• Non-oil sector contributions to fiscal revenues have increased, helping to reduce the deficit.

Banking Sector Insights

• The non-performing loan (NPL) ratio slightly increased, mainly due to corporate overdue loans.
• FX exposure has reached a historic low, indicating improved foreign exchange management.
• Credit growth to the private sector is expected to rise in H1-2018, supported by falling interest rates.
• Banks have maintained a high and stable interest margin despite the easing of rates.

External Accounts and Balance of Payments (BoP)

• The current account surplus improved in 2017, with FX reserves at USD 357.6bn in January 2018.
• The trade balance improved due to both oil and non-oil balances.
• The share of oil in total exports continues to decline, indicating diversification efforts.
• The government's reliance on external financing is expected to decrease over the next few years.

Budget Projections (2017-2020)

• Financing of the deficit in 2018 is expected to come mainly from domestic sources.
• Government debt is among the lowest in emerging markets, with a projected increase in the share of domestic debt over time.

Key Views and Expectations

• Economic momentum is expected to recover in Q1-18, with several sectors showing improvement.
• The ruble is expected to remain strong due to moderate inflation, accelerating growth, and cautious central bank easing.
• The CBR's dovish stance and continued rate cuts are expected to support economic growth and reduce inflationary pressures.
• Inflation is projected to trend back towards 4% in 2018, with risks from high inflation expectations.
• The banking sector is supported by a recovery in credit growth, but NPLs remain a concern.

Analyst Information

• Lead Analyst: Elina Ribakova
• Research Associate: Twisha Roy
• Contact: Elina Ribakova - (+44) 20 7547-1340 - elina.ribakova@db.com
• Twisha Roy - twisha.roy@db.com

Risk Disclosures

• This report is not an offer or solicitation to buy or sell any financial instruments.
• Deutsche Bank does not provide investment, legal, tax, or accounting advice.
• The report is for informational purposes only and does not consider individual investment objectives.
• Investors are advised to consult with independent financial advisors before making investment decisions.
• The report may include forward-looking statements subject to change without notice.
• Trading in options, futures, and derivatives involves significant risk and may result in losses.