Russia CIS Macro and Fixed Income 2018

Russian macro update: healthy resilience and positive outlook

• GDP growth slowed from the 1.9% y-o-y in 2Q18 to 1.3% y-o-e in 3Q18, which we think is still a decent performance given the base effect (+2.2% y-o-y in 3Q17). The average growth rate for 9m18 reached 1.5% y-o-y
• We forecast acceleration in GDP growth in Q4 to over 2% due to higher industrial production growth rates. For the full year 2018 we expect the real GDP growth to be just under 2%
• Industrial production growth accelerated to 3.7% y-o-y in October from 2.1% in September. This was due to pickup in manufacturing growth, which we expect to remain strong in 4Q18
• Current account surplus for 10M18 rose to $88bln, implying that in October it was $12.1bln, thanks to higher oil prices, stronger exports and weaker ruble. We expect current account surplus for the full year 2018 to reach $104bln (over 6.3% of GDP)
• Inflation is likely to decelerate in November, it can be as low as 3.5% y-o-y, as in October, hence we expect it to be below 4.0% y-o-y by the year-end. This implies that we can expect CPI growth of just 0.8-0.9% in November-December
• CBR recent monetary and fiscal policies have helped to absorb external shocks. On September 14 the Central Bank hiked policy rate by 25 basis points to mitigate the growing inflation risks. Besides, in late August the bank suspended FX purchases (a total of $30bln) till the end of the year to reduce the exchange rate volatility
• Budget surplus for 10M18 reached over 3trln rubles thanks to a 39% buildup of budget revenues as a resultof higher oil prices and weaker ruble. We expect budget to remain in surplus in 2018 (2.5% GDP), for the first time since 2013

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