Russian economy review –February 2022

Russia's GDP grew by 4.7% in 2021, according to the Ministry of Economy. The ministry notes that the growth completely compensated the 2.7% decline reported in 2020.

Before the sanctions were imposed on Russia, Central Bank of Russia (CBR) has issued a new medium-term macroeconomic forecast in which it lowered its estimate of the country's economic growth next year from 2-3% to 1.5-2.5%.

However, on February 28 JPMorgan said Russia’s economy is expected to contract 20% in the second quarter and by around 3.5% for the full year following intensified sanctions. JPMorgan also lowered its forecast for Russia’s trend growth to 1.0% from 1.75% as growing political and economic isolation will crimp expansion in years to come. Russia inflation is expected to stand at 10% at year-end with risks heavily skewed to upside, the bank added.

Oil and gas condensate production in Russia in February 2022 increased by 9.2% compared to the same period in 2021 to 42.23 million tons Average daily production was recorded at 11.05 million barrels. Russian oil exports to non-CIS countries in February 2022 reached 17.23 million tons which is 12.7% higher than in 2021. Average daily exports were recorded at 4.6 million barrels.

Gas production in Russia in February 2022 decreased by 0.5% compared to the same period in 2021 to 62.11 billion cubic meters. According to preliminary data, Gazprom produced 89.4 bcm of gas in January 2022 - the level of the same period last year.

In January, industrial production continued to grow: +8.6% YoY (after 6.1% YoY in December, compared to the level of two years ago: 6.1% after 10.0%, respectively). The main contribution to the growth of the manufacturing industry in January was made by metallurgical and machine-building industries (+17.6% YoY and +15.6% YoY, respectively). Strong growth continued in key non-resource sectors – such as the chemical industry, food processing, woodworking, and light industry. In addition, in January, the dynamics of oil refining output accelerated to 9.2% YoY and went up to the level of two years ago. The manufacturing PMI for January 2022 decreased to 48.6 points from 51.8 points a month earlier. Power consumption in the Unified Energy System of Russia in February 2022 was 96.5 billion kWh, 0.2% less than in the same period last year. In February 2022, UES power plants generated 98.5 billion kWh, 0.3% less than in February 2021.

Russia's service sector PMI in February 2022 was 52.1 points compared to 49.8 points in December. Russian service providers registered a moderate increase in business activity in the middle of the first quarter of 2022. Business confidence rose to the strongest level since September 2021. Customer activity is growing again, while the pandemic continues to affect customer demand.

The unemployment rate in Russia in January 2022 was 4.4%, which is 0.1% more than in December 2021. According to statistics, in January 2022 3.3 million people aged 15 and over were classified as unemployed

In 2021, the current account surplus of the Russian Federation's balance of payments continued to strengthen. According to a preliminary estimate of the Central Bank of Russia, the current account surplus of the balance of payments of the Russian Federation in January 2022 reached a record value of $19.0 billion, having increased more than doubled in comparison with January last year.

The dynamics of the current account of the balance of payments was determined by a significant expansion of the trade surplus to $21.4 billion as a result of an increase in exports of goods under the influence of favorable price conditions at a significantly lower rate of increase in imports.

For the period from February 19 to February 25 2022 inflationary pressures were the highest since November 2021. Based on operational data, the price increase for the period from February 19 to February 25 is likely to be near the 1.99% m/m NSA mark.

On February 11, at its first meeting this year, the Central Bank of Russia's Board of Directors raised the key interest rate by 1 percentage point to 9.5% per annum. On February 28, the Central Bank raised its key interest rate from 9.5% to the highest level in the history - 20% per annum. The regulator explained that such step will allow raising deposit rates to the levels necessary to compensate for the increased devaluation and inflation risks.

The January trend was subdued, mainly due to the long holidays: mortgage lending slowed down, consumer lending grew moderately, and the corporate portfolio remained almost unchanged. The traditional decline in household deposits after a significant inflow in December was offset by an inflow of funds from companies and regional budgets. The sector's profit increased slightly after the December decline, which was partly due to one-time factors – the settlement of problem debts of individual borrowers and the effect of a low base due to large additional reserves in December. At the same time, banks also reflected a significant negative revaluation of securities in their capital due to expectations of an additional tightening of monetary policy, as well as due to geopolitical risks.

The US dollar exchange rate for February 1, 2022 was 77.47 rubles. The exchange rate on February 28 was 83.54 rubles to the US dollar.

Euro exchange rate on February 1 was 86.50 rubles. At the end of the month the exchange rate was 93.59 rubles per euro.

In February 2022, the total trading volume on the Moscow Exchange markets grew 41.5% to $963.9 trillion (680.4 billion in February 2021).

February was a hard month for the Moscow Stock Exchange. The Russian stock market began to fall due to Russia's military operation in Donbass, which began on 24 February following a decision by the country's president, Vladimir Putin. The ruble-denominated IMOEX index and dollar-denominated RTS index were down 45.5 % and 49.3 % respectively by the close of previous trading day. The main reason were investors saving their investments from risks due to the escalating geopolitical situation.

The drop in stock indices was the biggest ever recorded for the Russian market. The previous record fall in the Russian stock market was recorded on October 28, 1997. That time the decline of IMOEX index reached 20.81%. The largest drop was shown by VTB PJSC -51.07%, Sberbank -49.1%, PIK Group -46.15%, Rosneft -45.95%, Yandex -44.31% and Petropavlovsk Group -40.53%.

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