Russia: Defensive Current Account Should Limit Ruble Downside

In 2Q, the current account was strong at US$20bn thanks to non-fuel exports, while net capital outflows decelerated to US$10bn on a lower preference for foreign assets. The non-fuel BoP should enhance the ruble's resilience to global risk-off in 3Q. But an appreciation in 4Q remains uncertain and subject to local investment out of the sovereign fund.

The current account remained strong in 2Q21

The first estimate of the Russian balance of payments for 2Q21 is painting a relatively benign picture. The current account surplus was reported at US$19.9bn, which is close to the market consensus, and near the upper border of our forecast range of US$15-20bn. Even though the 2Q21 result is lower than 1Q21's US$23.2bn, this is still much better than suggested by the seasonality, as normally in the second quarter it is close to zero on higher imports of goods and services and dividend payments. Looking deeper into the details it is evident that the reasons for the strength go beyond the Urals price, which indeed increased from US$60/bbl in 1Q21 to US$67/bbl in 2Q21.

  • The key positive from the current account data is growth in quarterly non-fuel exports by 39% YoY (despite the lack of a low base effect) to US$57bn, equal to the historical high seen in 4Q20. The detailed structure of quarterly exports is not available yet, but based on the April-May data from the federal customs, the key contributors to the growth include metals, non-fuel chemicals (mainly fertilizers), machinery&equipment, and lumber, all showing c.60% year-on-year growth on a combination of a stronger price environment and higher physical volumes. Even assuming some moderation in the growth for 2H21, this year's non-fuel exports growth can reach a four-year high of 20% after staying flat in 2020.
  • Imports of goods and services also picked up, but more or less in line with expectations and from a low base of 2020 (Figure 1). Imports of goods are the bigger concern, as they showed 42% YoY growth in 2Q21 to an 8-year quarterly high of US$76bn, suggesting that the strengthening local activity is creating strong demand for imports. Imports of services also showed a recovery – by 22% YoY to US$15bn, which however is still significantly below the pre-Covid high of US$25bn seen in 2Q19. The recent reopening of popular tourist destinations, including Turkey (with estimated quarterly spending US$1.5-3.0bn), and Egypt (relevant mostly for 4Q21), the imports of services should continue gaining momentum to 30-35% YoY in 2H21, but in absolute terms annual imports of services in 2021 should still be around US$30bn lower than the 2019 peak of US$99bn.
  • Finally, the fuel revenues, which reached a two-year high of US$53bn in 2Q21, benefited not only from the higher oil price but also apparently from higher volumes leading to fuel exports recovering to US$0.8bn per 1/bbl (Figure 2). This is still below the pre-OPEC+ US$0.85-1.00, but assuming some easing in the restrictions scheduled for 2H21, further recovery should be expected.
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Disclaimer: This publication has been prepared by the Economic and Financial Analysis Division of ING Bank N.V. (“ING”) solely for information purposes without regard to any ...

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