Russia Economy – April 2013

The federal budget in 2012 recorded a small deficit of Rb 12.8 bn ($420 million), equal to 0.02% of GDP. Excluding oil and gas revenues, the deficit rose to 10.6% of GDP from 9.5% of GDP in 2011. Although the budget remained in surplus until November 2012, the traditional surge in spending in December brought it back into deficit. The federal budget for 2013 sets the deficit at 0.8% of GDP, with revenue virtually unchanged at the 2012 level but expenditure projected to increase by 4.4% y-o-y. Growth prospects will remain dependent on international commodity prices. Growth in 2012 was slower than expected. The officially estimated real GDP growth rate of 3.4%, which was down from 4.3% in 2011, was the slowest since 2009. The 2013 GDP growth forecast remains unchanged at 3.4%

Domestic demand was the main driver of growth in 2012. Retail sales rose by 5.9% in 2012 and fixed investment rose by 6%. Fixed investment fell unexpectedly in December by 0.7%, which was the biggest monthly drop since January 2012 m-o-m. The share of fixed investment in GDP was lower than in many emerging markets. The share of Gross Fixed Capital Formation (GFCF) in the Russian economy is around 20% of GDP compared to China, where it is around 45% of GDP, and India, where it is 25% of GDP.

Meanwhile, business surveys continue indicating a deceleration in manufacturing growth. The manufacturing PMI declined to 51.0 in March from 52.0 in February, with output and new orders inching down, but employment recovered from 47.1 to 49.4. Importantly, both input and output price indices continued to move down, indicating decreasing supply side inflation pressures.