Russian economy review – January 2021

The Russian economy successfully completed the year 2021, having increased by 4.7% according to the Russian Ministry of Economic Development, surpassing the growth estimate of 4.5%. At the same time, a slight slowdown in GDP growth to 4.3% was recorded in December. The accumulated economic growth during the three quarters of 2021 has already amounted to 4.6% y/y. Nevertheless, the development of the basic industries index in October-November indicates a possible acceleration of annual GDP growth in the fourth quarter. A stronger than expected economic growth throughout 2021 contributes to the base effect for GDP growth in 2022. Therefore, even if quarterly economic growth slows down to zero throughout 2022, we expect annual GDP growth to be 1.4% above 2021 levels.

Oil and gas condensate production in Russia in January 2022 increased by 7.9% compared to the same period in 2021 to 46.53 million tons Average daily production was recorded at 11 million barrels. Russian oil exports to non-CIS countries in January 2022 reached 19.76 million tons which is 13.3% higher than in 2021. Average daily exports were recorded at 4.67 million barrels.

Gas production in Russia in January 2022 increased by 1.1% compared to the same period in 2021 to 69.4 billion cubic meters. According to preliminary data, Gazprom produced 47.4 bcm of gas in January 2022. This is 0.5 bcm (1%) more than last year.

Industrial production in 2021 grew by 5.3%, having fully recovered from the fall of 2020 (-2.1%). The main contributor to the industrial output growth of 2021 was the manufacturing industry, where output increased by 5.0% after rising by 1.3% a year earlier. There was a steady expansion of output in the key non-resource industries: chemical complex (+7.1%, including pharmaceuticals: +11.5%), food industry (+3.9%), machine building (+9.7%), wood processing (+8.7%) and consumer goods industry (+6.0%).

The manufacturing PMI for January 2022 increased to 51.8 points from 51.6 points a month earlier. Power consumption in the Unified Energy System of Russia in January 2022 was 106.9 billion kWh, up 3.8% from January 2021. In January 2022, UES power plants generated 109.4 billion kWh, 3.7% more than in January 2021.

Russia's service sector PMI in January 2022 was 49.8 points compared to 49.5 points in December. The decline in business activity was also the slowest since last October. Companies attributed this to weak client demand and a corresponding drop in new orders.

Unemployment in Russia in December remained at the 4.3%, which is the level reached in September 2021 and maintained for four months in a row. According to statistics, in December 2021. 3.2 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 2021 reached a record value of $120.3 billion, having increased more than three times in comparison with 2020.

The dynamics of the current account of the balance of payments was determined by a two-fold increase in the trade surplus to $185.9 billion as a result of a considerable expansion of merchandise exports due to a favorable price situation and a much slower growth rate of imports.

Inflationary pressures remained above average at the beginning of 2022. Based on operational data, the price increase for January is likely to be near the 1.0% m/m NSA mark. This corresponds to an acceleration of the annual inflation rate to 8.7-8.9% in January. The price increase was traditionally influenced by the indexation of excise duties and regulated tariffs: compared to the end of December, the price of public transport passes rose by 6.2%, housing services by 2.4% and petrol by 0.6%.

The Central Bank of Russia (CBR) kept its key rate at 8.50% per annum in January 2021. The first monetary policy meeting of the year will be held on 11 February. At the meeting, CBR is likely to decide to raise its key rate by 1 p.p. - to 9.5%. The main reason is that there are no signs of a slowdown in inflation, which exceeds CBR’s target of 4%.

Corporate lending and mortgages accelerated significantly in December, while consumer lending slowed down. Traditionally for December, households' funds increased significantly due to premium payments and advance payments for January social security payments, as well as companies' funds as a result of state budget expenditures. Sector profitability was lower than in November due to higher operating expenses (including for pre-holiday advertising and bonus payments), although some banks experienced major additional provisioning.

The US dollar exchange rate for January 1, 2021 was 74.29 rubles. The exchange rate on January 31 was 77.81 rubles to the US dollar.

Euro exchange rate on January 1 was 84.06 rubles. At the end of the month the exchange rate was 86.64 rubles per euro.

In January 2022, the total trading volume on the Moscow Exchange markets grew 36.5% to $1.14 trillion ($840.2 billion in January 2021).

The best performing markets were the stock market (up 87.4%), money market (up 53.4%), futures market (up 43.4%) and foreign exchange market (up 18.2%). The volume of operations on the standardized derivatives market (SPFI) increased 6.6 times, and on the precious metals market - 1.6 times.

The growth leaders on the Moscow Exchange in January were PJSC Quadra +54.5%, PJSC Akron +42.51%, OJSC YATEK +20.15%, OJSC SN-MNG +17.56% and PJSC ChKPZ +16.72%. Russian Footwear Group -53.33%, Bashinformsvyaz -39.37%, GTL -31.44%, VK -24.33% and Ozon -24.32% showed the most significant decline.

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