WOOD Flash – Russia macro: above-expectations GDP dynamics open the door to protective tightening

As we flagged in our Daily on 8 March, inflation accelerated further in February, to 5.7%, which not only surprised both us and the market negatively, but also offers upside risks to the CBR’s projections. In our view, we are already on the verge of a tighter macroeconomic policy stance in Russia, on both the fiscal and monetary fronts, far earlier than we expected previously. The acceleration in monthly inflation, coupled with positive indications from early macroeconomic data points this year, show an acceleration above our expectations already, aiming towards a firm recovery in activity. February’s business sentiment surveys painted a similar picture: the manufacturing sector is leading the recovery, followed by the construction sector, while the services sector has shown some incremental gains recently, owing to the optimism caused by the deployment of the vaccines.