Russian Industry: February Slump Confirms Fragility Of The Recovery

In the longer run, we still expect some improvement in the industrial output thanks to the expected relaxtion of OPEC+ constraints. Recovery outside the commodity extraction sector is less certain and will depend on the current consumption trend (to be released this Friday) and on the budget discussion.

  • We continue to expect that this year's official spending plan may receive a 0.5-1.0% GDP boost.
  • Moreover, the recent media report suggests that Russia is considering additional infrastructure investments from the National Wealth Fund this year. The details and the likelihood of that scenario is so far unclear, but the threshold for the liquid FX savings of the NWF, after which they can be diversified into more risky assets, is 7.0% of GDP, and according to our expectations, the actual sum may reach 8.0-8.5% of GDP this year. This means that the government could potentially invest up to 1.5% of GDP from the National Wealth Fund this year, in addition to direct and transparent budget spending. A confirmation of such plan would improve the mood in the state-driven industrial sectors but may also reinforce the hawkish stance by the Bank of Russia.
  • But the clarity on the subject is more likely to follow in April, during the process of amending the annual budget draft, i.e. after the upcoming key rate meeting this Friday. 
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