Russia: Budget Spending Plays Catch Up

Given the pace of spending at the beginning of the year, we do not exclude that some portion of the RUB1.1 tr (1% of GDP) spending backlog accumulated from the previous years will be added (up to 50% of it, in our view) to this year's budget spending plan. The updated budget draft was supposed to be submitted on 11 February, meaning the public release may take place very soon.

An additional implication of the January spending splurge is that the January activity data to be released next week may surprise on the upside, especially on the producer side. Meanwhile, later into the year, some negative effects from the coronavirus outbreak may start to kick in as well.

Faster budget spending also means less downward pressure on CPI, which seems to have stabilized at 2.4% YoY in the first half of February, based on preliminary weekly data. At the same time, given the recent dovish shift in the Bank of Russia's stance and the potential reduction of pressure on RUB thanks to the design of the Sberbank ownership transfer, we continue to see scope for a further reduction in the key rate in 1-2Q20.

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