Macro: COVID-19 Update Russia: Better prepared to fight crisis but output loss will be inevitable

Containment measures: In Russia travelling connections have been substantially reduced while all tourists arriving from countries affected by COVID-19 pandemic are obliged to quarantine themselves for fourteen days. With pandemic cases reaching 438 as of 23 March schools have been ordered to stay closed till 12 April and cultural/public attendance sites have been shut. The Russian government pledged some RUB 300 bn for a special fund to fight pandemic and its aftermath, while tax holidays were offered to the affected businesses and tax duties were canceled for medical imports. The authorities pledged more help if needed to help business and people to overcome difficulties created by pandemic. Growth outlook/sectoral impact: Russia looks better prepared to fight a crisis now than any time in the past thanks to conservative macroeconomic policies allowing the government to build significant cash buffers with the Central Bank amassing also huge FX reserves. Still, Russia cannot avoid the output loss due to substantially worsened external and domestic environment with some businesses like civil aviation or tourism experiencing total shutdown. In this situation state-sponsored national projects can help to stimulate investment activity and demand in some larger sectors related to construction and relevant segments, but private sector will see a sharp loss of investment activity. Meanwhile a collapse of OPEC+ deal has two dimensions, i.e. lower oil prices will cut revenue of the Russian oil companies but at the same time domestic producers will be able to lift the output by 4% this year compared to zero growth in 2019. This should prevent the Russian economy from entering a deeper recession but a zero growth in 2020 is becoming a reality. Rates/monetary policy:We expect the Central Bank to reverse the easing bias and start rate hikes in the coming months. Main reason for this is the risk associated with the RUB devaluation while higher rates can help to stabilise the situation. Fiscal policy:The government expects this year a budget deficit because of lower oil prices, while the anti-crisis measures will be financed from National Wealth Fund without creating an extra pressure on the budget. This Research was produced and first published by Raiffeisen Bank International AG which is supervised by the Austrian Financial Market Authority and the National Bank of Austria.