16
RUSSIA’S ECONOMIC OUTLOOK AND MONETARY POLICY APRIL 2020
RUSSIA’S ECONOMIC
OUTLOOK AND
MONETARY POLICY
APRIL 2020
Global economy
2
Sources: www.worldometers.info, Reuters, Bloomberg
Significant restrictive measures have been introduced to combat the coronavirus pandemic both across the world and in Russia, which negatively influences economic activity.
The spread of the coronavirus also continues to exert considerable downward pressure on oil prices, despite the conclusion of the G20-OPEC+ agreement in April.
10
15
20
25
30
35
40
45
50
55
60
2018 2019 2020World USA (IHS Markit)
Euro area Developed ecocomies
EMEs China
PMI Composite since 2018, points
0
500
1000
1500
2000
2500
22.01 05.02 19.02 04.03 18.03 01.04 15.04
Number of active* COVID-19 cases in the world
since the beginning of 2020, thousand people
* Total number of active COVID-19 cases = Total number of
cases – Total number of recovered and deceased patients
0
10
20
30
40
50
60
70
80
90
01.01 21.01 10.02 01.03 21.03 10.04 30.04
Urals price dynamics since the beginning
of 2020, USD/bbl
Global financial markets
3
Sources: Reuters, Bloomberg, Bank of Russia calculations
The situation in global financial markets has stabilised after a period of particularly high volatility in March, including owing to actions taken by central banks around the world.
10Y government bond yields, %
70
80
90
100
110
120
130
140
150
160
2019 2020
S&P MSCI World MSCI EM
STOXX SSE
Stock indices (100 = 01.01.2017)
0,0
0,5
1,0
1,5
2,0
2,5
3,0
6,0
7,0
8,0
9,0
10,0
11,0
12,0
2019 2020
10-year government bond yields, %
Indonesia India South Africa
Brazil Mexico Russia
USA, rhs Italy, rhs
5.5
2.5
-1
0
1
2
3
4
5
6
7
8
9
10
11
2017 2018 2019 2020
Key rate CPI, core Non-food goods Food goods Services CPI, headline
Consumer prices
4
Sources: Rosstat, Bank of Russia
The drop in aggregate demand will become a significant disinflationary factor due to the current and deferred economic effect of the restrictive measures introduced to combat the spread of the coronavirus pandemic around the world, including Russia.
This will offset the effect of temporary pro-inflationary factors, including those related to the fall in oil prices.
Feb
20
Mar
20Δ,pp
CPI, headline 2.3 2.5 +0.2
CPI, core 2.4 2.6 +0.2
Median 2.4 2.4 -
Inflation by main groups, core inflation (% YoY)
and the Bank of Russia key rate (% p.a.)
Inflation rates for main groups, seasonally adjusted (1)
5
Sources: Rosstat, Bank of Russia’s estimates
Inflation data for March and April reflects a temporary response of consumer prices to the weaker ruble and the episodes of increased demand for certain product groups.
Columns – monthly price growth rate, seasonally adjusted, %Line – annual inflation, % (rhs); thin line – 3MMA SAAR Red line – 4% SAAR
Mar 2020, % YoYMoM
SAAR
All 2.5 6.2
- ex. F&V, oil
prod. and util.2.8 6.8
Food 2.2 8.7
- ex. F&V 2.7 8.8
CPI, excluding fruit and vegetables,
oil products and utility services All goods and services
Food goods, excluding fruit and vegetablesFood goods
-1
0
1
2
3
4
5
6
7
89
10
-1
0
1
2
3
4
5
6
7
89
10
2018 2019 2020
-1
0
1
2
3
4
5
6
7
8
9
10
-1
0
1
2
3
4
5
6
7
8
9
10
2018 2019 2020
-3-2-1012345678910
-3-2-10123456789
10
2018 2019 2020
-3-2-1012345678910
-3-2-10123456789
10
2018 2019 2020
Inflation rates for main groups, seasonally adjusted (2)
6
Sources: Rosstat, Bank of Russia’s estimates
Short-term pro-inflationary risks related to a more considerable potential pass-through of the ruble weakening into prices, as well as to the episodes of high demand for select product categories, have declined.
Mar 2020, % YoYMoM
SAAR
Non-food 2.5 5.7
- ex. petrol 2.7 6.4
Services 3.0 3.4
- ex. utilities 3.1 3.0
Columns – monthly price growth rate, seasonally adjusted, %Line – annual inflation, % (rhs); thin line – 3MMA SAAR
Non-food goods Non-food goods, excluding oil products
Services Services, excluding utility services
0
1
2
3
4
5
6
7
8
9
10
0
1
2
3
4
5
6
7
8
9
10
2018 2019 2020
0
1
2
3
4
5
6
7
8
9
10
0
1
2
3
4
5
6
7
8
9
10
2018 2019 2020
-1
0
1
2
3
4
5
6
7
8
9
10
-1
0
1
2
3
4
5
6
7
8
9
10
2018 2019 2020
-1
0
1
2
3
4
5
6
7
8
9
10
-1
0
1
2
3
4
5
6
7
8
9
10
2018 2019 2020
Inflation expectations
7
Sources: LLC “inFOM”, Bank of Russia’s business survey
Inflation expectations of households and businesses have increased, but in the face of falling demand their change will be of a short-term nature.
0
10
20
30
40
50
60
70
80
90
100
In a month In a year
Not sure
There will be noinflation or rise inprices
Prices will be lowerthan today
Prices will be roughlythe same
Prices will be slightlyhigher
Prices will besignificantly higherthan today
Responses of households to the question: “How will
the prices for final goods change?”, %
0
10
20
30
40
2016 2017 2018 2019 2020
Хозяйство всего
Добыча
Обработка
Сельское хозяйство
Строительство
Торговля
Транспортировка и хранение
Услуги
Mining and quarrying
Manufacturing
Wholesale and retail trade
Transportation and storage
Services
Agriculture
Businesses - total
Construction
Replies of businesses to the question: “How will the
prices of final goods change in the upcoming 3 months
(increase/decrease)?”, balance of replies, % SA
0%
10%
20%
30%
40%
50%
60%
Supply disruptions Cancellation or reduction of orders Change in prices for raw materials andcomponents
Economic activity (1)
8
Source: Bank of Russia’s business survey
Economic activity is affected by the spread of the coronavirus pandemic and the restrictive measures in place to address it, both around the world and in Russia, as well as by the decline in prices for the main Russian export goods.
Replies of businesses to the question: «How has the coronavirus situation
affected your company over the past week?»
0%
10%
20%
30%
40%
50%
60%
70%
80%
Growth in demand for yourcompany's products
Labour shortages Other Not affected
28.Feb 26.Mar 02.Apr 09.Apr 16.Apr
% o
f co
mp
anie
s th
an h
ave g
ive
n a
nsw
ers
Economic activity (2)
9
Source: IHS Markit.
Based on leading indicators, including surveys, activity has seen a steep decline in both the services sector and manufacturing. Both domestic and external markets have registered a contraction in volumes of new orders. Business sentiment and expectations have both deteriorated.
In this environment, Q2 GDP is set to decline. However, economic activity is expected to gradually recover as the coronavirus-linked situation normalises and restrictive measures ease both nationwide and across the world.
2016 2017 2018 2019 2020
35
40
45
50
55
60
PMI Composite PMI Services
PMI Manufacturing PMI Manufacturing New Orders
PMI Manufacturing New Export Orders
PMI Russia: Companies’ estimates of demand for their productsMar Feb Δ, p
PMI Mng 47,5 48,2 -0,7
PMI Services 37,1 52,0 -14,9
PMI Composite 39,5 50,9 -11,4
1.2
-1.4
-5.8
-5.8
-12
-10
-8
-6
-4
-2
0
2
4
2014 2015 2016 2017 2018 2019 2020
Сальдо
Базовое сальдо
Ненефтегазовое сальдо
18.5
11.5
7.0
17.3
0
2
4
6
8
10
12
14
16
18
20
2014 2015 2016 2017 2018 2019 2020
Доходы, всего
Ненефтегазовые доходы
Нефтегазовые доходы
Расходы
Fiscal policy
10
Sources: Federal Treasury
Federal budget revenue and spending,
12-month moving sum, as % of GDP
Federal budget balance,
12-month moving sum, as % of GDPAmid a sharp drop in oil prices the budget rule mechanism will allow the Government to cover the shortfall in oil and gas revenues by means of the National Welfare Fund. This will help the Government to maintain its plans regarding budget expenditures, which, in turn, will support the economy.
In March and April the Government introduced a number of measures to mitigate the negative economic impact of the coronavirus pandemic.
That said, the baseline scenario factors in only the already effective support measures adopted by the Government. At the same time the Bank of Russia admits that the Government may adopt additional measures, which will be taken into account in the forecast later on.
*Basis balance is an indicator of the budget policy calculated by the Ministry of Finance:
basis balance = basis oil and gas revenue + non-oil-and-gas revenue – total spending.
Total revenue Federal budget balance
Oil and gas revenue
Non-oil-and-gas-revenue
Non-oil-and-gas balance
Basis balance*
Total spending
2
4
6
8
10
12
14
16
18
2014 2015 2016 2017 2018 2019 2020
Short-term household deposits
Long-term household deposits
Key rate
3Y OFZ yield
CPI, % YoY
Deposit and credit market – interest rates
11
Monetary conditions remain overall unchanged.
Interest rates showed mixed dynamics across different financial market segments. The deposit and credit market largely saw a certain increase in interest rates reflecting the growth of OFZ yields in March on the back of falling prices and rising risk premiums in global financial markets.
In April, OFZ yields declined, coming close to the levels observed this February. This was facilitated by the Bank of Russia’s measures to support financial stability as well as by declining volatility in global financial markets. Lower OFZ yields create conditions for reduction in interest rates in other financial market segments.
Source: Bank of Russia
Interest rates on household ruble deposits,
% per annum
Interest rates on long-term loans in rubles
to the non-financial sector, % per annum
4
6
8
10
12
14
16
18
20
22
2014 2015 2016 2017 2018 2019 2020
Loans to non-financial organisations
Loans to small and medium businesses
Loans to households
Key rate
3Y OFZ yield
-20
-10
0
10
20
30
40
2014 2015 2016 2017 2018 2019 2020
Revaluation of foreign currency loans
Foreign currency loans
Ruble loans (over 3 years)
Ruble loans (1 to 3 years)
Ruble loans (up to 1 year)
Total growth, % AFCR
Deposit and credit market – lending
12
Source: Bank of Russia
the Bank of Russia’s decision to cut the key rate along with regulatory relaxations will compensate for the tightening of monetary conditions on the back of increased risks.
This measure, together with other measures implemented by the Bank of Russia, will support lending, including in the most vulnerable economic sectors.
-10
-5
0
5
10
15
20
25
30
2014 2015 2016 2017 2018 2019 2020
Consumer loans
Car loans
Mortgage loans
Total retail portfolio growth, %
Annual growth of corporate loan portfolio
(contribution of individual components, pp)Annual growth of retail loan portfolio
(contribution of individual components, pp)
0
10
20
30
40
50
60
70
80
90
2017 2018 2019 2020 2021 2022
Actual Baseline (February) Baseline (April)
Forecast assumptions – Oil price
13
The Bank of Russia’s forecast relies on a conservative view of oil prices, especially in 2020.
The baseline scenario assumes the average price of Urals of $27 per barrel in 2020 with its subsequent rise to $35 and $45 per barrel in 2021 and 2022respectively.
In 2020 a sharp drop in global demand and a rise in oil inventories will exert considerable downward pressure on oil prices. At the same time in the medium run oil prices are expected to gradually increase as global demand picks up and oil inventories decrease. Oil supply growth will be partially limited by the G20-OPEC+ agreement.
Source: Press release following the Bank of Russia’s Board of Directors meeting as of 24.04.2020
Urals price dynamics and the oil price path in the baseline scenario (average for each year), USD/bbl
Bank of Russia forecast, April 2020 (1)
14
Source: Press release following the Bank of Russia’s Board of Directors meeting as of 24.04.2020
* Banking sector claims on organisations and households means all of the banking sector’s claims on non-financial and financial institutions and households in rubles, foreign currency and precious metals, including loans issued (including overdue loans), overdue interest on loans, credit institutions’ investment in debt and equity securities and promissory notes, as well as other forms of equity interest in non-financial and financial institutions, and other accounts receivable from settlement operations involving non-financial and financial institutions and households.
Claims’ growth rates are given with the exclusion of foreign currency revaluation. In order to exclude the effect of foreign currency revaluation the growth of claims in foreign currency and precious metals is converted to rubles using the period average USDRUB exchange rate.
Key parameters of the Bank of Russia’s baseline scenario
(growth as % of previous year, if not indicated otherwise)
2019
(actual)
BASELINE
2020 2021 2022
Urals price, average for the year, US dollars per barrel 64 27 35 45
Inflation, as % in December year-on-year 3.0 3.8-4.8 4.0 4.0
Inflation, average for the year, as % year-on-year 4.5 3.1-3.9 4.0 4.0
Gross domestic product 1.3 -(4.0-6.0) 2.8-4.8 1.5-3.5
Final consumption expenditure 2.4 -(0.6-2.6) 2.3-4.3 0.8-2.8
– households 2.5 -(1.6-3.6) 3.2-5.2 1.0-3.0
Gross capital formation 3.8 -(7.0-13.0) 2.3-6.3 1.8-5.8
– gross fixed capital formation 1.5 -(5.6-9.6) 2.2-6.2 2.2-6.2
Exports -2.3 -(10.6-14.6) 3.7-7.7 2.3-6.3
Imports 3.4 -(5.6-11.6) 4.9-8.9 2.0-6.0
Money supply in national definition 9.7 6-11 6-11 6-11
Claims on organisations and households in rubles and foreign currency* 10.1 3-8 6-11 6-11
– on organisations 7.1 4-9 5-10 5-10
– on households 19.0 (-2)-2 9-14 10-15
Bank of Russia forecast, April 2020 (2)
15
Source: Press release following the Bank of Russia’s Board of Directors meeting as of 24.04.2020
* Using the methodology of the 6th edition of “Balance of Payments and International Investment Position Manual” (BPM6). In the Financial account “+” stands for net lending, “-” – fornet borrowing. Due to rounding total results may differ from the sum of respective values.
Russia’s balance of payments indicators in the baseline scenario*
(billions of US dollars)
2019
(estimate)
BASELINE
2020 2021 2022
Current account 65 -35 -18 5
Balance of trade 164 43 66 101
Exports 419 250 295 363
Imports 254 207 229 262
Balance of services -36 -34 -39 -49
Exports 63 46 50 54
Imports 99 80 89 103
Balance of primary and secondary income -64 -44 -45 -47
Current and capital account balance 64 -35 -18 5
Financial account (excluding reserve assets) -5 11 2 2
Government and the central bank -23 -4 -8 -8
Private sector 18 15 10 10
Net errors and omissions -2 -1 0 0
Change in reserve assets ('+' – increase, '-' – decrease) 66 -47 -20 4
16
Source: Press release following the Bank of Russia’s Board of Directors meeting as of 24.04.2020
On 24 April 2020, the Bank of Russia Board of Directors decided tocut the key rate by 50 bp to 5.50% per annum. Sincethe March Board of Directors meeting, the situation has changeddramatically. Significant restrictive measures have been introduced tocombat the coronavirus pandemic both in Russia and across theworld, which negatively influences economic activity. This createsmaterial and prolonged disinflationary influence on price dynamicsfrom the aggregate demand perspective, which offsets the effect oftemporary pro-inflationary factors, including those related to the fall inoil prices. At the same time the situation in global financial marketshas stabilised after a period of particularly high volatility in March.
The Bank of Russia has reviewed its baselineforecast scenario and is shifting to accommodativemonetary policy. According to the Bank of Russia’s forecast,
given the monetary policy stance, annual inflationwill reach 3.8-4.8% in 2020 and will stabilise around4% later on.
If the situation develops in line with the baseline forecast, the Bankof Russia holds open the prospect of further key ratereduction at its upcoming meetings. In its key ratedecision-making, the Bank of Russia will take into account actual andexpected inflation dynamics relative to the target and economicdevelopments over the forecast horizon, as well as risks posed bydomestic and external conditions and the reaction of financialmarkets.
Monetary policy decision on 24 April 2020
5.5
2.5
0
2
4
6
8
10
12
2017 2018 2019 2020
Key rate, % per annum Inflation, % YoY
