17
Russia 2019: risk-averse mode Dmitry Dolgin, Chief Economist, Russia & CIS November 2018

Russia 2019: risk-averse mode - ING Think · Civil servants&Military Transport R&D IT&Telco Finance RUB per month - Acceleration in the salary growth is seen predominantly in the

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Page 1: Russia 2019: risk-averse mode - ING Think · Civil servants&Military Transport R&D IT&Telco Finance RUB per month - Acceleration in the salary growth is seen predominantly in the

Russia 2019: risk-averse mode

Dmitry Dolgin, Chief Economist, Russia & CIS November 2018

Page 2: Russia 2019: risk-averse mode - ING Think · Civil servants&Military Transport R&D IT&Telco Finance RUB per month - Acceleration in the salary growth is seen predominantly in the

Key messages and forecasts for 2019

2 Sources: CEIC Database, Bloomberg, Rosstat, ING

- GDP growth at modest 1.0% due to weakening household consumption as a result of higher VAT rate and declining confidence in sustainable income growth;

- Corporate activity limited around state-sponsored projects, local corporate loan growth not broad based, mostly reflects infrastructure projects and substitution of foreign debt;

- rouble to remain stable on balanced current and capital accounts unless portfolio flows deteriorate. Sanctions against new state debt not priced in, remain a downside risk;

- Key rate unlikely to go lower on mounting CPI risks (VAT hike, gasoline prices) and external uncertainties (US-China, US-Russia);

- Budget policy likely to be eased on expenditure in response to weaker GDP, declining popular support; and on revenues (oil tax manoeuvre/excise) in response to gasoline price risks;

- Banking sector: more interconnected with CBR and the Ministry of Finance. Interbank interest rates depend on budget rule-related FX purchases and key rate expectations.

Quarterly indicators 3Q17 4Q17 1Q18 2Q18 3Q18 4Q18F 1Q19F 2Q19F 3Q19F 4Q19F

Real GDP (%YoY) 2.2 0.9 1.3 1.9 1.3 1.7 1.1 0.8 1.2 1.1

CPI (eop, %YoY) 3.0 2.5 2.4 2.3 3.4 4.0 5.2 5.7 5.4 4.8

Central bank key rate (eop, %) 8.50 7.75 7.25 7.25 7.50 7.50 7.50 7.50 7.50 7.50

3m interest rate (eop, %) 8.7 7.9 7.3 7.5 8.1 8.3 8.1 7.9 7.7 7.5

10yr yield (eop, %) 7.6 7.5 7.1 7.7 8.5 8.5 8.3 8.1 7.9 7.5

USD/RUB exchange rate (eop) 57.6 57.6 56.9 57.5 65.6 63.0 64.0 65.0 66.0 65.0

EUR/RUB exchange rate (eop) 69.1 69.1 68.3 67.3 75.4 72.5 73.6 76.7 79.2 81.3

Page 3: Russia 2019: risk-averse mode - ING Think · Civil servants&Military Transport R&D IT&Telco Finance RUB per month - Acceleration in the salary growth is seen predominantly in the

Domestic demand under pressure

- In 3Q18 the GDP growth moderated to 1.3% year on year due to the slowdown in the activity of households and producers

- Contribution of the consumer demand and investment activity is decreasing

Source: Rosstat, MinEco, ING3

Producers and consumers’ activity remains soft GDP growth is increasingly dependent on the external sector

- Limiting factors: end of electoral cycle, completion of large investment projects (World Cup 2018 and Crimea), rising geopolitical uncertainty

- Reliance on the external sector is growing: through the rise in volumes of exports and lower imports amid weaker rouble

-6%

-4%

-2%

0%

2%

4%

6%

-3%

-2%

-1%

0%

1%

2%

3%

Jan

-16

Ap

r-1

6

Jul-

16

Oct

-16

Jan

-17

Ap

r-1

7

Jul-

17

Oct

-17

Jan

-18

Ap

r-1

8

Jul-

18

Oct

-18

GDP, % YoY (lhs)Industrial output, % YoY (rhs)Retail trade, % YoY (lhs)

1.3%

-10%

-8%

-6%

-4%

-2%

0%

2%

4%

6%

8%

3Q

13

4Q

13

1Q

14

2Q

14

3Q

14

4Q

14

1Q

15

2Q

15

3Q

15

4Q

15

1Q

16

2Q

16

3Q

16

4Q

16

1Q

17

2Q

17

3Q

17

4Q

17

1Q

18

2Q

18

3Q

18

ConsumptionInvestmentsNet exportsInventoriesGDP, % YoY

Page 4: Russia 2019: risk-averse mode - ING Think · Civil servants&Military Transport R&D IT&Telco Finance RUB per month - Acceleration in the salary growth is seen predominantly in the

Households keep a cautious stance…

- Retail trade growth has stabilized around 2-3% YoY despite the drop in unemployment to the record-low level of 4.5-4.7% and the outperformance of real wages (account for 2/3 of the total households’ incomes) at 5-10%.

- Consumer confidence (mostly driven by the low-income segment) remains under pressure: rise in public wages might be temporary, the planned increase in the VAT since Jan-2019, increase in retirement age.

- Acceleration in the retail loan growth to 22% (the share of mortgages and unsecured loans – 50/50) points to a moderately positive sentiment among higher-income households.

Source: Rosstat, CBR, ING4

Record-low unemployment together with the rise in wages do not accelerate the private consumption growth

Since 2017, the population has attracted consumer loans more actively, although not as much as in 2013

-10%

-5%

0%

5%

10%

15%

20%

25%

30%

35%

40%

45%

50%

Oct

10

Ap

r 1

1

Oct

11

Ap

r 1

2

Oct

12

Ap

r 1

3

Oct

13

Ap

r 1

4

Oct

14

Ap

r 1

5

Oct

15

Ap

r 1

6

Oct

16

Ap

r 1

7

Oct

17

Ap

r 1

8

Oct

18

Mortgage loans, ppt

Car loans, ppt

Other, ppt

Retail loans, % YoY

RUB retail deposits, % YoY

4.0%

4.5%

5.0%

5.5%

6.0%

6.5%

7.0%

7.5%

8.0%

-20%

-15%

-10%

-5%

0%

5%

10%

15%

Oct

-10

Ap

r-1

1

Oct

-11

Ap

r-1

2

Oct

-12

Ap

r-1

3

Oct

-13

Ap

r-1

4

Oct

-14

Ap

r-1

5

Oct

-15

Ap

r-1

6

Oct

-16

Ap

r-1

7

Oct

-17

Ap

r-1

8

Oct

-18

Unemployment, % (rhs)

Real salary, % YoY (lhs)

Retail trade, % YoY (lhs)

Page 5: Russia 2019: risk-averse mode - ING Think · Civil servants&Military Transport R&D IT&Telco Finance RUB per month - Acceleration in the salary growth is seen predominantly in the

5

9M18 monthly average salary by sector Nominal salary growth by sector

… due to low confidence in income growth

Sources : Rosstat, Bank of Russia, ING

26%

16% 16% 16%

11% 10%9%

9%8%

7% 7% 7% 6%6%

2% 2%

8%

4%

11%

7% 7%

16%

3%

21%

2%

5%

0%

5%

10%

15%

20%

25%

0%

5%

10%

15%

20%

25%

30%

9M17, % YoY 9M18, % YoY % of employed (rhs)

Salary growth, % YoY % of employed population

Budget-driven

27457

33205

33765

36030

39290

42011

42325

42471

43836

44604

47143

62839

67723

86206

0 20000 40000 60000 80000

Agro

Education

Trade

Construction&RE

Healthcare

Utilities

Total

Culture&Leisure

Manufact./ComEX

Civil servants&Military

Transport

R&D

IT&Telco

Finance

RUB per month

- Acceleration in the salary growth is seen predominantly in the lower-income, budget-dependent sectors (education, healthcare, etc.) accounting for 25% of Russia’s 73 mln employees. Increase in their consumer confidence is limited as the electoral cycle is over

- The remaining 75% of employees (with exception of IT&telco, accounting for 2%) do not see faster salary growth

Page 6: Russia 2019: risk-averse mode - ING Think · Civil servants&Military Transport R&D IT&Telco Finance RUB per month - Acceleration in the salary growth is seen predominantly in the

Investment demand looks constrained

- As large investment projects related to the World Cup 2018 and construction of infrastructure are completed, the investments activity is slowing down. Demand for borrowed funds seems to be limited: in 2017-18 the rise in the corporates’ debt burden made up RUB1.3-1.5trln per year against RUB3-6trln in 2011-13.

- Companies decrease the external debt burden and replace it with local bank loans. Domestic bond market is growing from a low base, but growth has slowed in 2018 due to deteriorating external conditions.

Source: Rosstat, CBR, ING6

…which reflects substitution of foreign debt; local corporate bond market continues to grow from low base

Corporate activity (industrial output, construction) moderate, recovery in local loan growth seen since 2018…

-18%

-15%

-12%

-9%

-6%

-3%

0%

3%

6%

9%

12%

-15%

-10%

-5%

0%

5%

10%

Corporate loans, % YoY (net of FX revaluation effect)Construction, % YoY (LHS)Industrial production, % YoY (LHS)

0.50.9

1.4 1.40.9

2.1

0.6

2.4

-0.4 -0.7 -0.8 -0.4-1.2

3.4

2.5

2.2

3.00.8

-1.1

0.5 1.6

-15%

-10%

-5%

0%

5%

10%

15%

-3

-2

-1

0

1

2

3

4

5

6Local bondsForeign debtLocal loansReal CAPEX, % YoY (rhs)

RUB TRLN, GROWTH INCOMPANIES' DEBT FOR 12M

Page 7: Russia 2019: risk-averse mode - ING Think · Civil servants&Military Transport R&D IT&Telco Finance RUB per month - Acceleration in the salary growth is seen predominantly in the

Lending recovery uneven by sectorCorporate loan growth by sector and book size

Sources : Bank of Russia, Rosstat, ING7

Sectors by leverage and NPL levels

Manufacturing

AgroCommodity

extraction

Regulated

sectors

Construction

Trade

Transport

& Telco

Real estate

Other sectors

(?)

-10%

-5%

0%

5%

10%

15%

20%

25%

30%

35%

40%

-25% -20% -15% -10% -5% 0% 5% 10% 15% 20% 25% 30% 35% 40%

X: 2017 loan growth, % YoY

Y: Current loan growth, % YoY

* Bubble size corresponds to the

loan portfolio size

Real estate

Regulated

sectors

Commodity

extraction

Construction

Trade

Transport

&Telco

Manufacturing

Agro

0%

2%

4%

6%

8%

10%

12%

14%

16%

18%

20%

0% 2% 4% 6% 8% 10% 12% 14% 16% 18% 20%

X: 2017 NPL, %

Y: Current NPL, %

* Bubble size corresponds to

leverage as % of sector’s value added

- With exception for transport and telcos (7% of portfolio), pick up in local lending is driven by sectors with high NPL/leverage (construction, trade, agriculture – 24% of portfolio) or unidentifiable (other, 21% of portfolio)

- Sectors with the highest quality (industrials, 41% of portfolio) are either deleveraging (oil exporters) or showing stable demand for local loans

Page 8: Russia 2019: risk-averse mode - ING Think · Civil servants&Military Transport R&D IT&Telco Finance RUB per month - Acceleration in the salary growth is seen predominantly in the

USD/RUB: with current account surplus sterilized…

- Since 2017, the share of rolled over corporate foreign debt is decreasing due to low investment demand. In 3Q18 it was only 40% on external risks.

- In 3Q18, net foreign debt redemption accounted for $15 out of $19 bln net capital outflow

- As a result, current account surplus is being routinely sterilized even in the absence of FX interventions

- Suspension of MinFin FX purchases on the open market till the end-2018 was a forced balancing measure

- At Urals around $65/bbl current account to be fully sterilized by FX interventions and foreign debt redemptions in 2Q-4Q19

Source: Rosstat, Minfin, CBR, ING8

Corporates have intensified the external debt repayments…

… promoting larger private capital outflows…. … and does not allow the rouble to take advantage of the growing current account surplus

13 15

710 11 12 11

17

-4

19

23 58 5 8

30

19

26

35

30

1517

22

-5

0

5

10

15

20

25

30

35

40

-5

0

5

10

15

20

25

30

35

40

1Q18 2Q18 3Q18 4Q18F 1Q19F 2Q19F 3Q19F 4Q19F

MF FX interventions Net private capital outflowCurrent account surplus

-44 -44-27 -26 -25

48%

65%

74% 72% 71%

40%

50%

60%

70%

80%

90%

100%

-150

-120

-90

-60

-30

0

2H14 2015 2016 2017 9M18

Scheduled gross corp. foreign debt redemptions, $bln (lhs)Actual change in foreign corp. debt, $bln (lhs)Share of refinanced foreign debt, % (rhs)

-125

-84

-104-95 -87

65 6692

-31

-44-26

-34

-81-54

-60

-152

-57

-25-44

-200

-150

-100

-50

0

50

100

2011 2012 2013 2014 2015 2017 3Q18

Change in corp. foreign debt, $ blnOther private flows, $ blnNet private capital flow, $ bln

$ BLN, 4Q MOVING TOTAL

Page 9: Russia 2019: risk-averse mode - ING Think · Civil servants&Military Transport R&D IT&Telco Finance RUB per month - Acceleration in the salary growth is seen predominantly in the

…RUB depends on the portfolio flows

- YTD, rouble weakened by 12% to USD, in line with the peer currencies (-9%) amid EM risk-off. Since 2Q18 non-residents outflows from OFZ made up approximately RUB600bn leading to the increase in the OFZ yields by 150-200bp, also in line with peers. The ruble’s discount to the peers (mostly, geopolitical) is stable at around 15%.

- Risks related to the extension of sanctions against the new sovereign debt might be not fully priced-in by the markets. Non-residents are holding US$27bn worth of OFZ. In case of new sanctions, they can reduce their positions by up to 30% (as it occurred in 2014). Each US$5bn of capital outflows correspond to weaker fair value of the rouble by 1USD/RUB, but market reaction can be sharper.

Source: Bloomberg, ING9

USD/RUB dynamic stays in line with the EM/commodity peers… …reflecting global capital flows in EM amid rising Fed rates, mounting US-China trade conflict

-40%

-35%

-30%

-25%

-20%

-15%

-10%

-5%

0%

5%

40

50

60

70

80

90

100

110

Jan

14

Ap

r 1

4

Jul 1

4

Oct

14

Jan

15

Ap

r 1

5

Jul 1

5

Oct

15

Jan

16

Ap

r 1

6

Jul 1

6

Oct

16

Jan

17

Ap

r 1

7

Jul 1

7

Oct

17

Jan

18

Ap

r 1

8

Jul 1

8

Oct

18

USD/RUB discount to peers*

USD/RUB (lhs)

USD/peers*, (lhs)

* equal weight FX basket of S. Africa, Brazil, Mexico, Turkey, Malaysia, Norway, Colombia

Index of FX vs. USD

RUB discount to peer basket

De

pre

cia

tio

n v

s. U

SD

RUB’s discount to peers*

RUB/USD index

Peers*/USD index

9

10

11

12

13

6

7

8

9

10 Russia

Mexico

Indonesia

India

Brazil (rhs)

% %

Page 10: Russia 2019: risk-averse mode - ING Think · Civil servants&Military Transport R&D IT&Telco Finance RUB per month - Acceleration in the salary growth is seen predominantly in the

10

CPI growth is on the rise, inflation expectations are weakening Real interest rates in Russia are the highest among peers

Inflationary pressure mounts

Source: Rosstat, CBR, Bloomberg, ING

-5

-4

-3

-2

-1

0

1

2

3

4

5

6

7

8

9

No

v 1

4

Jan

15

Ma

r 1

5

Ma

y 1

5

Jul 1

5

Se

p 1

5

No

v 1

5

Jan

16

Ma

r 1

6

Ma

y 1

6

Jul 1

6

Se

p 1

6

No

v 1

6

Jan

17

Ma

r 1

7

Ma

y 1

7

Jul 1

7

Se

p 1

7

No

v 1

7

Jan

18

Ma

r 1

8

Ma

y 1

8

Jul 1

8

Se

p 1

8

No

v 1

8

RUSSIA INDIA

CHINA TURKEY

INDONESIA BRAZIL

MEXICO S. AFRICA

%

Arguments in favor of unchanged CBR rate:• Households’ CPI expectations moderated• Freeze in gasoline prices reached till Mar-19• Russian real rates highest among EMs• GDP and consumption growth weakening• CPI risks related to VAT hike accounted for

Potential triggers for further hikes:• If weekly CPI remains at ~0.15% per week, then

FY18 CPI exceeds the CBR guideline of 4.2% YoY• Further risk-off towards Russia (USA-China, USA-

Russia tensions) could weaken RUB. 10% RUB depreciation adds up to 1 pp to CPI trend

7.50%

9.8%

2%

4%

6%

8%

10%

12%

14%

16%

18%

No

v 1

4

Ma

y 1

5

No

v 1

5

Ma

y 1

6

No

v 1

6

Ma

y 1

7

No

v 1

7

Ma

y 1

8

No

v 1

8

CPI, % YoY Key rate, % Expected CPI in 12М (HH)

4.0%

Page 11: Russia 2019: risk-averse mode - ING Think · Civil servants&Military Transport R&D IT&Telco Finance RUB per month - Acceleration in the salary growth is seen predominantly in the

- Budget draft looks conservative: it implies expenditures of 17% of GDP – lowest since 2017 –amid decreasing political ratings.

- Extra outlays could be financed without breaking the budget rule in case of weaker rouble compared to the planned 64/USD. Each 10 USD/RUB increases revenues by RUB1.2-1.3trn.

- Easing of the budget rule – an increase in the base oil price, for example, by 10$/bbl – allows either to raise the spending by RUB1.5-1.8trn per year due to non-replenishment of the National Welfare Fund, or decrease the level of the local borrowing by this amount.

11

Budget: will it remain conservative?

Official budget draft for 2019-21 Budget expenditures and popular support

Source: MinFin, Levada Center, ING

2018F 2019F 2020F 2021F

Avg USD/RUB 61.7 63.9 63.8 64.0

“Base" Urals, $/bbl 40.8 41.6 42.4 43.3

Base oil and gas revenues, RUB trn 4.7 4.9 5.2 5.4

Non-oil and gas revenues, RUB trn 10.1 11.7 12.3 13.0

Expenditures, RUB trn 16.8 18.0 19.0 20.0

Budget balance under base Urals -2.0 -1.4 -1.6 -1.7

Sources of funding, RUB trn 2.0 1.4 1.6 1.7

Gross outlays of the NWF, RUB trn 1.1 0.0 0.0 0.0

Net OFZ placements, RUB trln 0.7 1.7 1.8 1.6

Other 0.2 -0.3 -0.3 0.1

Actual Urals, $/bbl. 69.6 63.4 59.7 57.9

Additional oil revenues->NWF, RUB trn 4.1 3.4 2.8 2.6

Final budget balance 2.1 1.9 1.2 1.0

…% GDP 2.1% 1.8% 1.1% 0.8%

Local state debt, % GDP 9.8% 10.9% 12.1% 12.7%

State savings, % GDP 4.8% 7.7% 10.4% 12.1%

Breakeven Urals, $/bbl 53 49 50 51

Revenues’ sensitivity, RUB trn

+10 $/bbl Urals = 1.4 1.5 1.6 1.8

+10 USD/RUB = 1.4 1.3 1.2 1.3

16

% 18

%

18

%

25

%

22

%

20

%

19

%

19

%

19

%

19

%

19

%

18

%

17

%

50%

55%

60%

65%

70%

75%

80%

85%

90%

10%

12%

14%

16%

18%

20%

22%

24%

26%

20

06

20

07

20

08

20

09

20

10

20

11

20

12

20

13

20

14

20

15

20

16

20

17

20

18

Federal budget expenditures, % of GDP (lhs)President's approval rating, (rhs)

Page 12: Russia 2019: risk-averse mode - ING Think · Civil servants&Military Transport R&D IT&Telco Finance RUB per month - Acceleration in the salary growth is seen predominantly in the

- In case of further capital outflows from the EM and/or imposition of sanctions against the new sovereign debt, the MinFin will not be able to rely on non-residents as buyers of OFZs. The borrowing plan might be reduced in the event of depreciation of the rouble and/or in case of softening of the budget rule (see the previous slide).

- The backup plan for the MinFin is to consider local banks as the key OFZs’ buyers that now have a structural liquidity surplus of about RUB3trn, but now it is shrinking by RUB500bn per month due to the CBR’s suspension of the FX purchases on the open market.

12

In 2015-17 non-residents accounted for 2/3 of the OFZ market growth, further prospects are under question

Local banks: resource for the MinFin?

Source: MinFin, CBR, ING

298

642

1,107

806

1,7051,800

1,578

194

446713

-377*9%

9%9%

10%

11%

12%

13%

8%

9%

10%

11%

12%

13%

14%

-500

0

500

1,000

1,500

2,000

2015 2016 2017 2018F 2019F 2020F 2021F

OFZ market growth, RUB bln

Foreign inflows in OFZ

State local debt, % GDP (rhs)

RUB bln

* - 9М18

% GDP

24.5%

34.5%

25.0%

0%

5%

10%

15%

20%

25%

30%

35%

40%

-3

-2

-1

0

1

2

3

4

Monthly non-residident flows, $ blnShare of non-residents on the OFZ market (rhs)

OFZ market has saw foreign capital outflow of ~$1 bln per month since April

Page 13: Russia 2019: risk-averse mode - ING Think · Civil servants&Military Transport R&D IT&Telco Finance RUB per month - Acceleration in the salary growth is seen predominantly in the

Corporate funding – growing dependence on MFCorporate funding net of Minfin deposits with banks

Sources : Bank of Russia, Bloomberg, MinFin, ING13

Russian banks’ liabilities with Minfin

130

140

150

160

170

180

190

200

-20%

-10%

0%

10%

20%

30%

40%

50%

60%

Jan

-14

Ap

r-1

4

Jul-

14

Oct

-14

Jan

-15

Ap

r-1

5

Jul-

15

Oct

-15

Jan

-16

Ap

r-1

6

Jul-

16

Oct

-16

Jan

-17

Ap

r-1

7

Jul-

17

Oct

-17

Jan

-18

Ap

r-1

8

Jul-

18

Oct

-18

FX funding $ bln (rhs)Corporate funding (net of Minfin) % y/yRUB corporate funding (net of Minfin), % y/y

$ bln% YoY

4304

-334

-1,955

-2967

-1318

3022

-3000

-2000

-1000

0

1000

2000

3000

4000

0

500

1000

1500

2000

2500

3000

3500

4000

4500

5000

Jan

-14

Ap

r-1

4

Jul-

14

Oct

-14

Jan

-15

Ap

r-1

5

Jul-

15

Oct

-15

Jan

-16

Ap

r-1

6

Jul-

16

Oct

-16

Jan

-17

Ap

r-1

7

Jul-

17

Oct

-17

Jan

-18

Ap

r-1

8

Jul-

18

Oct

-18

Minfin deposits with banks, RUB bln

YTD budget balance, RUB bln (rhs)

RUB bln RUB bln

- Corporates are gradually reducing exposure to FX savings, replacing it with RUB accounts. Corporate funding growth outperforms lending due to constrained investment demand

- Banking sector’s dependence on Finance Ministry’s deposits is growing, reflecting large budget surplus. Currently, Minfin holds RUB4.3 trln on bank deposits, alleviating the negative effect of RUB3.0 YTD budget surplus and the halt to FX purchases on rouble liquidity

Page 14: Russia 2019: risk-averse mode - ING Think · Civil servants&Military Transport R&D IT&Telco Finance RUB per month - Acceleration in the salary growth is seen predominantly in the

Interbank market – shrinking, CBR role growsBanks’ balance with the CBR

Sources : Bank of Russia, ING14

Interbank market (liabilities)

30

40

50

60

70

80

90

-30%

-20%

-10%

0%

10%

20%

30%

40%

50%

60%

70%

80%

Jan

-14

Ma

y-1

4

Se

p-1

4

Jan

-15

Ma

y-1

5

Se

p-1

5

Jan

-16

Ma

y-1

6

Se

p-1

6

Jan

-17

Ma

y-1

7

Se

p-1

7

Jan

-18

Ma

y-1

8

Se

p-1

8

FX interbank loans, $ bln (rhs)

RUB interbank loans, % YoY

% YoY $ bln

- Local interbank market is shrinking on both FX and RUB sides, reflecting fragmentation of the banking sector, uneven access to liquidity by various groups

- Banks have generally positive liquidity balance with the CBR, however their dependence on the CBR liquidity is also increasing, reflecting bailouts

-6,000

-4,000

-2,000

0

2,000

4,000

6,000

8,000

Jan

14

Ap

r 1

4

Jul 1

4

Oct

14

Jan

15

Ap

r 1

5

Jul 1

5

Oct

15

Jan

16

Ap

r 1

6

Jul 1

6

Oct

16

Jan

17

Ap

r 1

7

Jul 1

7

Oct

17

Jan

18

Ap

r 1

8

Jul 1

8

Oct

18

Cash with CBRBanks' RUB debt to CBROBR

RUB bln

Page 15: Russia 2019: risk-averse mode - ING Think · Civil servants&Military Transport R&D IT&Telco Finance RUB per month - Acceleration in the salary growth is seen predominantly in the

Interest rates: upward pressureCBR interest rate corridor, Mosprime 3M and USD/RUB

Sources : Bank of Russia, Bloomberg, ING15

25

35

45

55

65

75

2

3

4

5

6

7

8

9

10

11

12

13

Ma

r-1

0

Jul-

10

No

v-1

0

Ma

r-1

1

Jul-

11

No

v-1

1

Ma

r-1

2

Jul-

12

No

v-1

2

Ma

r-1

3

Jul-

13

No

v-1

3

Ma

r-1

4

Jul-

14

No

v-1

4

Ma

r-1

5

Jul-

15

No

v-1

5

Ma

r-1

6

Jul-

16

No

v-1

6

Ma

r-1

7

Jul-

17

No

v-1

7

Ma

r-1

8

Jul-

18

USD/RUB (RHS)Mosprime 3M, %CBR key rate, %CBR fixed REPO rate, %

%

-300

-250

-200

-150

-100

-50

0

50

100

150

200

250

300

-3500-3000-2500-2000-1500-1000

-5000

500100015002000250030003500

Ma

r-1

0

Jul-

10

No

v-1

0

Ma

r-1

1

Jul-

11

No

v-1

1

Ma

r-1

2

Jul-

12

No

v-1

2

Ma

r-1

3

Jul-

13

No

v-1

3

Ma

r-1

4

Jul-

14

No

v-1

4

Ma

r-1

5

Jul-

15

No

v-1

5

Ma

r-1

6

Jul-

16

No

v-1

6

Ma

r-1

7

Jul-

17

No

v-1

7

Ma

r-1

8

Jul-

18

Bank liquidity balance*, RUB bln (LHS)Spread 3M mosprime - CBR key rate, bps (RHS)

* - bank liquidity balance = banks' correspondent accounts and deposits with the CBR PLUS CBR Bonds MINUS banks' liabilities to CBR and Finance Ministry

RUB bln bps

Banks’ liquidity balance and interest rate spread

- Since mid-2018 interbank rates see upward pressure amid accelerated net capital outflow, increase in the CBR key rate and expectations of further tightening, and the halt in FX purchases by the CBR in favour of Minfin

- The banks’ broad liquidity surplus with CBR and Minfin has shrunk by RUB2 trln to since mid-year to RUB1 trln currently, reflecting material increase of MF deposits with banks

- Further IR performance to depend on whether CBR reserves resume growth (whether it recommences FX purchases)

Page 16: Russia 2019: risk-averse mode - ING Think · Civil servants&Military Transport R&D IT&Telco Finance RUB per month - Acceleration in the salary growth is seen predominantly in the

Russia: Annual indicators

16 Sources: CEIC Database, Bloomberg, Rosstat, ING

Annual indicators

2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018F 2019F 2020F

Activity

Real GDP (%YoY) 5.2 -7.8 4.5 4.3 3.7 1.8 0.7 -2.5 -0.2 1.5 1.6 1.0 1.5

Private consumption (%YoY) 10.6 -5.1 5.5 6.8 7.9 5.2 2.0 -9.4 -2.8 3.4 2.5 1.0 1.5

Investment (%YoY) 10.6 -14.4 5.9 9.1 5.0 1.3 -1.8 -11.2 0.8 4.3 3.0 1.5 3.0

Industrial production (%YoY) 0.6 -10.7 7.3 5.0 3.4 0.4 1.7 -0.8 1.3 1.0 3.0 1.5 2.5

Prices

CPI (average, %YoY) 14.1 11.7 6.9 8.4 5.1 6.7 7.8 15.6 7.1 3.7 2.9 5.3 3.6

CPI (year-end, %YoY) 13.3 8.8 8.8 6.1 6.6 6.5 11.4 12.9 5.4 3.4 4.0 4.8 4.0

Wage rates (nominal, %YoY) 27.4 9.1 12.8 11.7 16.4 9.3 8.3 4.2 7.8 7.2 10.3 5.0 4.0

Fiscal balance (% of GDP)

Consolidated government balance 4.9 -6.3 -3.4 1.4 0.4 -1.2 -1.1 -3.4 -3.7 -1.5 2.5 1.3 1.3

Consolidated primary balance 5.3 -5.6 -2.9 2.8 1.0 -0.5 -0.4 -3.0 -3.2 -0.6 3.6 2.5 2.6

Total public debt 6.5 8.3 9.0 9.4 9.8 10.6 11.8 12.5 13.3 12.6 12.9 13.7 14.7

External balance

Current account balance (US$bn) 104 50 67 97 71 33 58 69 26 33 110 80 90

Current account balance (% of GDP) 10.4 5.6 5.9 6.7 4.2 2.1 5.3 6.5 1.8 2.1 6.7 4.9 5.4

Foreign exchange reserves ex gold (US$bn) 413 417 443 454 487 470 339 320 318 356 383 467 532

Debt indicators

Gross external debt (US$bn) 480 466 489 539 636 729 600 519 512 518 459 436 418

Gross external debt (% of GDP) 48.2 52.1 43.1 37.2 37.7 45.2 55.0 49.3 36.8 33.0 28.8 26.8 25.1

Lending to corporates/households (% of GDP) 40.0 41.5 39.2 38.6 40.7 46.0 53.2 54.7 50.7 50.0 52.5 53.7 55.5

Interest & exchange rates

Central bank key rate (year-end, %) n/a 6.00 5.00 5.25 5.50 7.50 17.00 11.00 10.00 7.75 7.50 7.50 6.50

3m interest rate (Mosprime, average, %) 11.1 11.5 4.1 5.5 7.2 6.9 10.5 13.8 11.2 9.4 7.7 7.9 6.8

3m interest rate spread over US$-Libor(ppt) 655 1036 325 409 662 668 1030 1382 1142 968 802 815 678

2yr yield (average, %) 7.5 9.3 5.9 6.7 6.9 6.2 9.0 11.6 9.2 7.7 7.1 7.6 6.6

10yr yield (average, %) 7.6 11.2 7.6 8.6 8.2 7.5 9.5 11.1 8.9 7.9 7.9 8.1 7.1

USD/RUB exchange rate (year-end) 29.4 30.2 30.5 32.1 30.6 32.9 58.3 72.9 61.2 57.6 63.0 65.0 67.0

USD/RUB exchange rate (average) 41.4 43.4 40.8 41.7 40.3 45.3 72.7 79.3 61.9 58.6 62.2 64.6 66.6

EUR/RUB exchange rate (year-end) 41.1 43.2 40.9 41.8 40.3 45.1 70.5 79.5 64.6 69.1 72.5 81.3 87.1

EUR/RUB exchange rate (average) 60.9 60.7 54.7 58.3 52.0 60.3 95.9 87.2 65.3 66.8 72.2 78.2 85.2

Brent oil price (annual average, US$/bbl) 59 94 36 78 96 111 113 108 45 55 75 66 69

Page 17: Russia 2019: risk-averse mode - ING Think · Civil servants&Military Transport R&D IT&Telco Finance RUB per month - Acceleration in the salary growth is seen predominantly in the

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