Spring got underway with rising geopolitical tensions propagating into an uncertainty shock and the first damage assessment reveals that the sectors of the Russian economy have each been unhappy in their own way.
Households brought forward discretionary spending in anticipation of a spike in import prices and found refuge for their savings in cash FX and real estate.
Corporates slashed capex outlays and beefed up FX liquidity buffers amid elevated uncertainty over the growth outlook and potentially tighter access to the credit markets.
The budget sector can hardly support the economy in the near term, as the shortfall in non-oil & gas tax receipts and financing operations offset higher oil & gas revenues, leaving little room to boost spending.
The central bank, faced with rising food and imports inflation, is unwilling to give a hand, but is busy sledgehammering its …#152;inflation crusader’ credentials. Though food shocks have prompted us to upgrade our YE14 CPI forecast to 5.3%, supply-side shocks delay (not prevent) disinflation.
Month ahead: more of the same (although we look for lower intensity) is expected in May, which is traditionally an inactive, holiday-heavy period in Russia. Geopolitics are going to remain in the spotlight ahead of the elections in Ukraine, while the potential gas contract with China and the economic forum (SPIEF) are on top of the domestic agenda.