Russian economic growth likely to ease in 2019

In the third quarter of this year, the Russian economy had grown 1.5 percent year-on-year, slowing down from the 1.9 percent growth recorded in the earlier quarter. The third quarter estimate was raised by 0.2pp versus the earlier release. The industrial production growth has continued to be in positive territory through 2018, and manufacturing PMI has rebounded staying over 50.

“We stick to our GDP growth estimates of 1.6 percent for 2018, 1.3 percent for 2019 and 1.4 percent for 2020, emphasising once more that a continuing tight monetary policy and geopolitical woes remain the major downside risk for our macro forecasts”, said Danske Bank in a research report.

Russian consumers would be impacted by the looming pension reform, VAT and fuel price rises in early 2019, especially in Russian provinces, where monthly salaries are lower than in cities with more than one million inhabitants.

Possible U.S. sanctions on the banking sector would add to volatility in Russian markets next year. Yet, as some banks have billions of USD of external obligations, that might restrict the level of toughness of the looming sanctions.

“If the so-called ‘bill from hell’ in the US becomes law, sanctioning foreign buyers of Russian sovereign debt, Russian banks have surplus liquidity to buy Russian local debt – OFZ – and replace nonresidents”, added Danske Bank.