Tuesday, January 15, 2013

15/1/2013: Some data and ideas on Russian economy


Russian economy quick summary of some latest stats and some disconnected ideas:

  • Q3 2012 real GDP +2.9% y/y down from +4% in Q2 and +4.9% in Q1 2012.
  • Expected Q4 2012 GDP growth +2.5%
  • November 2012 GDP growth of +1.9% y/y inflation-adjusted
  • Q1-Q3 2012 GDP +3.5% y/y
  • Q3 2012 consumption +5.1% y/y down from +6.9% in Q2
  • Expected full year consumption growth +4% y/y.
  • Consumer confidence down to lowest in 18 months (since Q2 2011) in Q4 2012 at -8, Q3 2012 reading was -6.
  • Industrial production is up +1.9% y/y in November, manufacturing activity +4%, manufacturing PMI at lowest level in 14 months in December at 50.0
  • Services PMI down to 56.1, from 57.1 in November
  • Composite PMI at 54.1 - a 4 months low.




Inflation is still a major headache for the Central Bank Rossii, with the level above the target, despite being close to historical lows:

  • Headline inflation at 6.6% in December against 6.1% y/y in 2011, making 2012 the second best year in terms of inflation in over 20 years.
  • Food inflation is 4.4% for 2012, tobacco up 21.2%. 6% crops failure due to drought in 2012 is taking the blame. Non-food inflation was 5.6% and services inflation at 5.4%.
  • Meat and poultry led food inflation (+8.3%), brad and eggs prices up 6.2%.
  • Alcoholic beverages prices were up 10.1%

Some consumption trends - food:


  • 2012 per capita food consumption (local currency) = +8.7%; forecast compound annual growth rate (CAGR) to 2016 = +10.2%
  • 2012 beer volume sales = +2.8%; forecast CAGR to 2016 = +2.9%
  • 2012 mass grocery retail sales (local currency) = +24.4%; forecast CAGR to 2016 = +28%
All good news for Irish exporters as food represents a strong component of our exports to Russia (see latest data here).

Central Bank raised inflation target for 2013 from 2012-set 4.5-5.5% for 2013 to 5-6% set on December 29th. 2012 target set in December 2011 was 5-6% range.

Capital outflows remain a problem in 2012:
  • 2012 capital outflow stood at $56.8bn - the fourth highest yearly outflow since collapse of the USSR, with $9.4 billion outflows in Q4 2012, up on Q3 outflows of $7.6bn and Q2 outflows of $6.4bn, but down on massive $33.3bn outflows in Q1 2012.
  • Net outflows were now recorded every year since 2007.
  • Banks recorded an inflow of $23.6bn in 2012, in part pushed up by privatization of Sberbank ($5.2bn)
  • Net outflows in non-banking sectors of economy amounted to $80.4bn in 2012.
I do expect moderating capital outflows from Russia in 2013 and still expect strong capex in Russia. Ruble valuations are likely to remain strong despite the Central Bank interventions. At any rate, the CB is likely to moderate interventions in the currency markets as it moves to inflation targeting by 2015 from current FX targets.

On the net, I am still bullish long-term on Russian Government (and corporate) bonds:
  • Recent decisions to open rubles-denominated bonds sales to foreign investors via Euroclear Bank and Clearstream International will continue pushing yields down. Renaissance Capital estimated recently that OFZs (ruble-denominated state bonds) yields can fall 50-80bps in 2013
  • In 2012, OFZs returned 1.12% against 0.38% for Brazil, 1.36% for India and 0.03% for China.



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