Russian economy review – September 2021

In September 2021 indications towards a slowdown of the Russian economy began to emerge as expected. According to the Ministry of Economic Development, the Russian GDP grew by 3.7% year-on-year in August 2021 and remained 0.4% above the pre-pandemic level of the 4th quarter of 2019. The falling growth rate is affected by the depletion of pent-up demand while inflation remains high. Economic growth continues to be supported by credit dynamics. Agricultural production made a negative contribution to GDP growth due to the weaker results of this year's harvest campaign as well as the policy of the Russian authorities to limit exports of certain categories in order to stabilize the domestic market.

By the end of September 2021 Russia produced 43. 8 million tons of oil and gas condensate, which is 7.5% higher than in the previous year. At the same time, since the beginning of the year, oil production has increased by 0.1% to 387. 3 million tons. Of these, 157.47 million tons were exported to non-CIS countries, which is 6% lower than in 2020. At the same time, an average of 4.23 million barrels per day were exported.

The gas industry also showed a positive trend, increasing production by 11.9% to 559.71 billion cubic meters in the three quarters of 2021. At the same time, 61.05 billion cubic meters of gas were produced in September, which is 9.6% higher than in the same month of the previous year. In the first nine months of the year, Gazprom delivered 145.8 billion cubic meters of gas for export, nearly breaking the 2018 record. - 149.2 billion cubic meters.

Industrial production in September 2021 is estimated to have exceeded the pre-pandemic level by 0.2%. The effect of the previous year's low base, when quarantine restrictions on economic activity were in force, is gradually being depleted. The dynamics of industrial production were positively affected by growth in the food industry (up 9.6% over August 2019 and 6.6% over August 2020), as well as the chemical complex (up 18.0% and 7.7% respectively) and the wood processing industry (up 10.0% and 9.5% respectively).

It should be noted that restrictions under the OPEC+ agreement are constraining the growth of extractive industries. As a result, mining continues to make a negative contribution to industrial production growth relative to 2019.

The Russian manufacturing PMI rose to 49.8 points in September 2021 from 46.5 points a month earlier. The increase in business activity is also indicated by a 6.4% increase in electricity consumption compared to the previous year's level. At the same time, electricity generation also increased by 7.4% year-on-year to 87.2 billion kWh.

The services PMI has shown a rapid increase in activity since May 2019, rising from 49.3 points in August to 50.5 points in September 2021. Russian companies attribute this performance to strong demand for services and solid new business growth.

According to the Russian Federal State Statistics Service, the unemployment rate in Russia decreased for the first time to August 2019 level and totaled 4.4% in August 2021 compared with 4.5% in July. As a result, the total number of unemployed people in Russia amounted to 3.4 million in August.

While domestic demand remains the driver of economic recovery, net exports also continue to break records. As a result, Russia's trade surplus reached $124.5 billion, up by $55.7 billion, or 1.8 times year-on-year. The main reason is the strong performance of key energy commodities and base metals. At the same time, non-energy non-resource exports are also showing strong growth.

The problem of high inflation remains acute: consumer inflation amounted to 0.60% in September and as a result, year-on-year price increase reached 7.40%. The strongest price increase was recorded by vegetables (+1.5%) and other foodstuffs. At the same time, the increase in prices of non-food products slowed down (+0.64% in September vs. +0.80% in August) and the prices of services were almost stable.

Given the growing inflationary pressure, on September 10 the Board of Directors of the Bank of Russia decided to raise the key rate by 25 basis points, to 6.75% per annum.

Among the main trends in the banking sector is the acceleration in retail lending (mainly consumer lending) due to seasonal factors. Corporate lending, on the other hand, has slowed moderately.

The dollar exchange rate on September 1, 2021 amounted to 73.27 rubles. On 1 October, the exchange rate was 72.76 rubles per US dollar.

The euro exchange rate on September 1 was 86.66 rubles. At the end of the month, the exchange rate was 84.87 rubles per euro.

The total volume of trading on the Moscow Stock Exchange in September showed a positive trend, increasing by 3% to 89.2 trillion rubles ($1.23 trillion) (86.5 trillion rubles ($1.19 trillion) in September 2020).

The stock market (up 40%) and money market (up 19%) showed the best performance. The volume of transactions in the standardized derivatives market (SPFI) rose 1.6 times, while the precious metals market saw a 1.3x increase in trading volume.

The leaders of the growth on the Moscow Exchange in September were shares of PJSC Gazprom +16.89%, PJSC Rosneft +15.73%, PJSC Tatneft +15.5%, PJSC Magnit +14.13%, UC RUSAL +13.05% and LUKOIL Group +12.41%. TMK PJSC -25.25%, Polymetal Group -17.3%, Sistema JSFC -15.94%, MMK PJSC -14.21%, Nornickel Group -13.29%, NLMK PJSC -12.11%, Polyus PJSC -10.47%, PIK Group - 9.75% showed the largest drop.

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