The 2012 federal budget recorded a small deficit of Rb37bn (US$1.2bn), equal to 0.1% of the GDP. Excluding oil and gas revenue, the deficit expanded to 10.6% of the GDP, up from 9.5% of the GDP in 2011. Although the budget remained in surplus until November 2012, the traditional December surge in spending brought it back into deficit.
The Russian Central Bank (RCB) has held the refinancing rate at 8.25% for several consecutive months. It had raised its main rates in September 2012, when inflation breached the 6% upper limit of the central bank's target range after a poor harvest pushed up prices. Growth prospects, however, will remain significantly dependent on international commodity prices.
The slowdown in activity that set in during the second half of 2012 has continued. Industrial production declined in January and was up by only 0.1% in February, while in March it rose again to an encouraging 2.6%. According to estimates by the Ministry of Economic Development, the economy expanded by only 0.1% in February, a significant slowdown from the 1.6% y-o-y growth recorded in January.
Domestic demand growth slowed significantly at the start of 2013, but year-on-year growth in retail sales volume improved again in March to 4.4% from February’s 3.0%. Inflation has recently accelerated and is eroding household purchasing power. The slowdown in retail sales growth is also due to a deterioration of consumer sentiment and a deceleration of credit expansion.
Year-on-year consumer price inflation dropped to 7.11% in March 2013 from 7.38% in February, the first decline in inflation since June 2012. The rise in food prices fell to 8.3% from 8.7% in February, while non-food inflation reached 5.2% (from 5.3% in February) and services inflation lessened to 7.9% (from 8.2% in February).
A good 2013 harvest will reinforce the expected downward trajectory for inflation in 2013. While the first two months of the year produced signals that point to lower growth this year, March output has been encouraging. However, the impact of the first two months and somewhat lower global commodity prices — which provide a significant source of income for the economy — have led to a downward revision of Russia’s GDP forecast from 3.4% to 2.9%. Moreover, fixed investment fell after a strong year in 2012 and wage growth slowed to its weakest pace for two years in the first quarter, prompting private household consumption to ease slightly. At the same time it should be highlighted that the Russian government’s GDP forecast has also been revised — to an even larger extent — from 3.6% to 2.4%.