Russian economy review – March 2022

The Russian economy is under increasing sanctions pressure since the start of the special operation in Ukraine. Numerous sanctions are imposed against strategically important sectors of the Russian economy and its financial sector. According to a forecast by the Center for Macroeconomic Analysis and Short-Term Forecasting (CMASTF), the decline of the Russian economy could last for three years - until 2024. According to estimates by the CMACP, the decline of the Russian GDP could reach 6.3-6.6% in 2022, 2-2.3% in 2023 and 0.3-0.5% in 2024.

As a consequence of the sanctions, the growth projections for 2022-2023 are being revised downwards. In particular, ratings agency Fitch Ratings predicts that Russia's economy could fall by 8% in 2022 amid coordinated international financial and economic sanctions.

Due to harsh sanctions and severing established ties with Western businesses, Russia's economy will experience a deep recession in 2022, according to analysts with S&P Global Ratings. According to their forecast, Russia's GDP will fall by 8.5% in 2022 and remain unchanged in 2023.

Oil with gas condensate production in Russia stood at 46.57 million tons in March 2022, a 7.3% increase on the same month of the previous year. Exports of Russian crude oil to non-CIS countries in Q1 2022 grew by 15.8% compared to January-March 2021 and amounted to 57.1 million tons.

Gas production in Russia was 67.5 bcm in March, up 0.8% on March 2021. Overall, gas production increased by 0.9% to 199.76 bcm from January to March 2022 compared to the same period in 2021.

Due to the rapidly changing economic environment, publication of some key indicators has been delayed. In particular, the Ministry of Economic Development has not yet released information on the dynamics of industrial production. Nevertheless, the Ministry of Energy reported that electricity consumption in Russia was 103.05bn kWh in March, which is 3% higher than in March last year. Indirectly, this may indicate at least continued production activity in the main sectors of the Russian economy.

Russia's manufacturing business activity index (PMI) fell to 44.1 points in March 2022 from 48.6 points a month earlier, according to a study by analytical agency IHS Markit. The decline in new sales reflected weak domestic and foreign customer demand.

Russia's services sector PMI stood at 38.1 points in March 2022, down from 52.1 points in February, the S&P Global survey showed. The latest data showed a noticeable decline in business activity in Russia's service sector, contrasting with the modest expansion seen in the previous period.

Unemployment in Russia fell to 4.1% in February, the lowest level since 1991, according to the Federal State Statistics Service. Russia's economy could lose around 2m jobs, causing unemployment to rise from 4.4% to 7.1-7.8% by the end of this year, the Center for Strategic Research (CSR) said.

According to the preliminary estimates of the Central Bank of Russia (CBR), in January-March 2022 the surplus of the current account of the balance of payments of the Russian Federation reached $58.2bn, having strengthened by more than 2.5 times as compared to the relevant period of 2021.

The dynamics of the balance of payments current account was determined by the expanding surplus of the balance of goods and services. The increase in the cumulative deficit of the other current account components resulted from an increase in investment income paid in. In the financial account of the balance of payments, the growth of assets exceeded the growth of liabilities.

According to the Federal State Statistics Service, consumer inflation accelerated to 7.61% m/m in March 2022 (February 2022: 1.17% m/m), with a seasonally adjusted 7.46% m/m SA1 (0.89% m/m SA a month earlier). In annual terms, the price growth rate increased to 16.69% y/y (9.15% y/y a month earlier).

The Central Bank of Russia kept its key interest rate at 20% per annum - the highest level in the history, for entire March. The regulator explained that such step will allow raising deposit rates to the levels necessary to compensate for the increased devaluation and inflation risks.

Banking sector trends changed at the end of February. In particular, the sector faced a significant outflow of household deposits. The Central Bank of Russia (CBR) liquidity instruments allowed the banks to meet the increased demand for cash. The situation was subsequently stabilized by an increase in the CBR's key rate, followed by an increase in ruble deposit rates.

The dollar rate stood at 93.55 rubles on March 1, 2021. On March 31, the exchange rate stood at 84.08 rubles to the US dollar. As of March 1, the Euro stood at 104.47 rubles. By the end of the month the rate was 93.69 per Euro. The main reason for the quick and steady strengthening of the ruble is the growth in exports amid falling imports and tight restrictions on currency purchases.

The total volume of trading on the Moscow Exchange markets in March 2022 amounted to 154.5 trillion rubles ($2,11 trillion) (90.4 trillion ($1,23 trillion) rubles in March 2021).

From February 25 to March 24, 2022 trading on the Moscow Exchange was suspended. This decision followed a panic sell-off in Russian securities, with the Moscow Exchange and RTS indices falling by more than 30% in the moment. By the end of March, all securities of Russian issuers as well as formally foreign issuers, but of "Russian origin", were allowed to be traded on the Moscow Exchange share market.

The Russian stock market gained 9.43 % in March while falling 28.62 % over the entire first quarter, with the ruble-denominated Moscow Exchange index reaching 2,703.51 points by the close of trading on March 31,. The dollar-denominated RTS index rose 9 % to 1,021.28 points over the month, with the overall fall of 36 % during the quarter.

Growth leaders on the Moscow Exchange were shares of PAO Phosagro (+39.92%), PAO Polyus (+29.82%), FixPrice (+28.46%), Rosneft (+24.22%) and PAO Magnit (+24.14%). Severstal (-26.31%), MMK (-17.67%), NLMK (-15.45%), Transneft (-14.68%) and Aeroflot (-12.63%) showed the biggest drop.

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