Macro: COVID-19 Update Russia: Double hit for the economy - COVID-19 and OPEC++

As of 14 May, there are 252.000 confirmed COVID-19 cases in Russia, propelling Russia to the second place in the number of cases globally after the United States. The surge in the numbers of confirmed cases exceeding 10.000 cases per day since the beginning of May is partly due to increased testing. The Non-working days regime, which had been in place since 30 March, is officially over, though Russian administrative regions will take decisions on the restrictive measures on their own. A nation-wide 3-stage exit plan has been announced without clear dates and deadlines. We have worsened our outlook for economic growth in Russia and now expect negative GDP growth at -4.9% yoy in 2020, given the longer COVID-19 restrictions in place compared to our initial assumptions and a new OPEC++ agreement, which is decreasing oil exports. Moreover, the high number of cases may prolong the process of lifting the restrictive measures, posing downside risks to our forecast. So far, the announced state support measures are relatively modest (compared to some other countries), estimated at 2.6% GDP (2.9 RUB trillion). The budget rule protects against the cuts in budget expenditures, which is positive for the economy but implies a large deficit of at least 3% of GDP this year, also depending on the recovery path of the oil price. CBR is likely to continue the easing cycle - we expect the key rate at 4.5% by year-end 2020. Unlike in 2015-2019, people will not be able to offset a deterioration in disposable incomes by larger borrowings as credit risk in the banking system is increasing.
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.