Russia Watch: Growing imports put pressure on C/A

Despite exports having almost recovered in yoy terms (-2% yoy), import growth is much stronger (+12% yoy), which resulted in a lower trade balance yoy. Although the oil and gas markets are enjoying a rally, oil exports are still limited by the OPEC++ agreement and it's easing is expected to be rather slow. At the same time, the economic revival has already started and given its large dependency on imported goods (especially true for the investment segment), import recovery is outpacing export dynamics, and in Q2 will be amplified by the low base effect of Q2 2020, when the nationwide self-isolation regime was introduced.

According to the CBR, net capital outflow has slowed down yoy in Q1 2021 (USD 11.8 bn vs USD 18.1 bn in Q1 2020), and it appears to also have decelerated in mom terms (USD 3.4 bn in March vs USD 5.6 bn in February), which is somehow incongruent with the alarming sanction agenda and a sell-off on the OFZ market and RUB dynamics. To recap, since the beginning of Q1 2021, the Russian rouble has been ignoring the rally on the oil market due to increased sanctions risks and has deviated from its fundamentally fair level. We estimate this premium at 10-15% and theoretically in the case that these sanctions are introduced, we do not expect the RUB to stabilise at much weaker levels compared to where it is trading now (at the current oil price, disregarding short-term shocks). In the coming months, these risks will put pressure on the rouble. On the fundamental side, the C/A surplus will weaken both due to the seasonal pattern and stronger imports on the back of the economic recovery, while export growth may be threatened by the third Covid-19 wave globally.