Relative to Western and Central Europe, Russia managed the winter wave of COVID-19 well, successfully flattened its curve, with new cases slowing notably in January. Businesses should work with local partners to find opportunities to raise prices on resilient segments, as inflation has begun to pick up across the CIS region. Meanwhile, the return of Alexey Navalny to Russia, his imprisonment, and resulting protests increase the likelihood of more US sanctions against Russia in the near future.
More resilient exports, thanks to stronger Asian demand starting in the second half of 2020 and the relaxation of OPEC+ cuts, have raised our 2021 GDP forecast. B2C firms should evaluate opportunities to raise prices on resilient segments, while still responsive to the price sensitivity of lagging ones. Inflation in December hit a year high of 4.9% YOY, driven in part by the weak ruble in the second half of 2020 and quickly rising producer prices that are being passed on to consumers. Consumers’ inflation expectations also accelerated to 12% in December. However, prices should not rise much further; consumer demand will likely remain moderate after confidence fell further last year.
The manufacturing Purchasing Managers’ Index in December rose to 49.7, the highest level since the summer, indicating rising optimism among businesses. Export orders continued to rise, while job losses slowed notably. By sector, food and chemicals—the most resilient sectors in 2020—have started to slow, while pharma, construction, minerals, and energy are rebounding. Unemployment may stay elevated in the first half of 2021 as the government allowed the moratorium on bankruptcies to expire in January, which will cause a spike in bankruptcies. Moderating this impact, the preferential lending rate to small and medium enterprises was cut from 8.5 to 7%, pegging it to the central bank’s key rate.
New COVID cases slowed further in January, offering hope for avoiding harsher restrictions like in the rest of Europe. Putin ordered moving from vaccination of at-risk groups to mass vaccinations, with two million doses released in late January. Up to one million people have been vaccinated. The goal is to vaccinate 60% of the population by the fall, which may be too ambitious in light of vaccination distribution issues in the regions.
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