Russia Watch: Economy with further signs of recovery

This week, Rosstat published a set of macro indicators for January. Industrial production declined by -2.5% yoy mainly due to calendar effect. Consumer demand (retail sales + services) improved to -2.3% yoy (-5.4% in the previous two months) amid easing of Covid-19 restrictions.

Consumer demand captured by retail sales inch towards positive territory

Rosstat, RBI/Raiffeisen Research

According to Rosstat, in January 2021, industrial production (IP) declined by -2.5% yoy (non-seasonally adjusted, +2.1% yoy in December 2020). On our estimate, half of it was a result of the calendar effect (2 less working days, -12% yoy). Assuming 10% of producers working 5 days a week, this effect deducts 1.2 pp from the monthly dynamics. Also, some goods in machinery and metallurgy manufacturing demonstrated negative growth figures (freight cars and buses, pipes and precious metals). At the same time, other production segments did not change materially. Chemical goods (amid pandemic) and energy (due to cold winter) continue to grow, oil production stagnates under OPEC++ restrictions. Given that historically IP performance is very volatile and not anticipating any significant negative triggers ahead we expect its further recovery to +2.0% yoy in 2021 backed by government budget expenditures and companies’ investment plans.

In contrast to industrial sector, the consumer segment data looks positive. The negative dynamics of consumer demand narrowed to -2.3% yoy demonstrating the best performance since April 2020, when the lockdowns started. An improvement of incomes and support from private loans were behind the strengthening, in our view. Retail sales almost reached the positive territory (-0.1% yoy) on the back of recovery in non-food segment (+0.9% yoy). Services still have a notable space for recovery (-9.4% yoy) which is expected thanks to improving pandemic situation and further restrictions easing and better income dynamics. At the same time, still high level of precautionary savings may be a restraining factor for the recovery. Nevertheless, we expect consumer demand to turn positive (+1.5% yoy) in 2021 backed by global economic recovery, budget stimulus and consumer lending.