WOOD Flash – Russia macro: recovery slowing, but CBR to stay cautious

According to the Ministry of Economic Development of Russia, the 3Q20 GDP contraction softened to -3.9% yoy, from -8.0% yoy in the previous quarter, totalling -3.5% ytd. As of September, the monthly GDP estimate recovered to -3.3% yoy, above the consensus of -3.8%. On the other hand, we note that most of the soft data and the business surveys signal that the pace of recovery is stalling in 4Q, while COVID-19 cases are rising. Overall, we see our 2020E real GDP forecast of -4.7% as appropriate. We expect the CBR to keep the rates unchanged at its upcoming meeting, on Friday (23 October), as the inflationary risks have increased mildly since September, when the CBR held the key rate at 4.25%, following the 25 basis point cut in July. However, considering the potential demand slowdown, we keep our 4.0% 2020E eop rate expectation for the year, as we still believe the CBR is likely to implement a 25bps cut at its December meeting. We have scaled back our forecast for the RUB recovery going forward.