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RenCap-NES Macro Monitor

RenCap-NES Macro Monitor Economics Research 19 June 2015

Economics Russia

The RenCap-NES leading GDP indicator signals -2.6% YoY growth in 2Q15 and -0.8% YoY growth in 3Q15. We treat these results with caution and maintain our -3.6% GDP growth estimate for 2015, at a $60/bl oil price.

The fourth estimate of 2Q15 GDP growth is -2.6% YoY

According to the RenCap-NES leading GDP indicator, the fourth estimate of 2Q15 GDP growth is -2.6% YoY, roughly unchanged from last month’s projection. In QoQ seasonally adjusted (s/a) terms, growth also turned negative (-0.2%). This means that Russia finally entered a recession in 2Q15, according to the standard definition (two consecutive quarters of negative GDP growth in QoQ s/a terms).

The first estimate of 3Q15 GDP growth is -0.8% YoY

The first estimate of real GDP growth in 3Q15 by the RenCap-NES indicator is -0.8% YoY, which is equivalent to 1.7% QoQ s/a. Although it looks optimistic, we approach this with a great deal of caution since early projections are typically very noisy. However, we treat this estimate as an early warning that Russian performance in the rest of the year could potentially be a positive surprise for both us and the market.

We maintain our -3.6% GDP growth estimate for 2015 at $60/bl oil

The recent RenCap-NES leading GDP indicator update suggests that our upgraded FY15E growth forecast, to -3.6% from -4.3% (Russia: Oil price scenarios for 2015-2016, 10 June 2015), was on track. However, we remain cautious toward macro prospects in 2015, and believe risks to our updated growth call are fairly balanced. Our -3.6% growth forecast implies the weakest quarterly GDP growth readings could occur in 2Q15 and 3Q15, with GDP falling by more than 4% YoY. For 2016, we expect GDP growth of 1.8% at $80/bl oil (our base case), or growth of 0.3% at a flat oil price.

Central bank intention to boost reserves by $15bn in the rest of the year implies limited support for the currency

The Central Bank of Russia (CBR) plans to boost reserves by $15bn in the rest of the year, according to the recently published Monetary Policy Report (by cutting down amounts of FX refinancing and purchasing currency on the market). We strongly believe the CBR thinks this move will not significantly weaken the rouble, which could worsen inflation prospects, thanks to a strong current account this year ($93bn in 2015 at $60/bl oil). Our base case assumes the rouble averages RUB56.8/$ in the rest of the year, but our forecast implies the CBR resumes reserve spending in September 2015. With an additional $15bn of reserve accumulation in the rest of the year, we anticipate the rouble will weaken well below RUB65.0/$. While we are happy to be wrong and hope this does not happen, if the CBR overestimates the current account surplus at a reasonable exchange rate (we estimate $58bn in 2015 at $60/bl oil), future currency behaviour would be heavily dependent on the CBR’s ability to rapidly modify its initial plans to a changing environment and stop reserve accumulation, or even resume reserve spending.

Konstantin Styrin, PhD +7 (495) 956-9508 x254 [email protected] Oleg Kouzmin +7 (495) 258-7700 x4506 [email protected] Charles Robertson +44 (20) 3379-7835 [email protected]

Important disclosures are found at the Disclosures Appendix. Communicated by Renaissance Securities (Cyprus) Limited, regulated by the Cyprus Securities & Exchange Commission, which together with non-US affiliates operates outside of the USA under the brand name of Renaissance Capital.

Figure 1: Russia – real economy, % YoY Apr-15 Mar-15 12 13 14

Industrial production -4.5 -0.6 2.7 0.4 1.7 Fixed investment -5.3 -4.8 6.8 -0.2 -2.5 Retail sales -9.8 -8.7 6.0 3.9 2.5 Real wages -13.2 -10.6 8.6 5.3 1.3 Unemployment, % 5.8 5.9 5.5 5.5 5.2

Source: Rosstat, Renaissance Capital estimates

Figure 2: Russian GDP growth, % YoY

Source: Rosstat, NES estimates, Renaissance Capital estimates

Figure 3: World currencies performance since the start of 2015, % YtD


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https://research.rencap.com/eng/download.asp?id=20804



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Renaissance Capital 19 June 2015


Figure 4: Real GDP growth, YoY


Figure 5: S/A GDP growth, QoQ


Figure 6: 2Q15 GDP forecast revision and its main drivers

Source: NES estimates, Renaissance Capital estimates

In this report, we update our real GDP forecast for 2Q15 and produce a first projection for 3Q15. These estimates are based on the publicly available data as of the end of May, and are essentially a nowcast and a one-quarter-ahead forecast, respectively.

According to the RenCap-NES leading GDP indicator, real GDP growth in 2Q15 is -2.6% YoY, which corresponds to -0.2% in QoQ s/a terms. This forecast is roughly unchanged compared with last month’s projection of -2.5% YoY, or -0.1% QoQ s/a. Based on Rosstat’s estimate of 1Q15 GDP growth (-2.2% YoY) and the latest RenCap-NES leading GDP indicator projection for 2Q15 growth, in 1H15 growth is estimated to fall by 2.4% YoY.

The first estimate of real GDP growth in 3Q15 is -0.8% YoY, which is equivalent to 1.7% QoQ s/a. Although somewhat optimistic, we approach this with a great deal of caution since early projections tend to be very noisy and imprecise. The 3Q15 forecast is subject to four revisions in our subsequent reports. However, this estimate suggests GDP growth in QoQ s/a terms could turn positive in 3Q15. This means Russia potentially could exit its recession as soon as next quarter, according to the standard definition (two consecutive quarters of negative GDP growth in QoQ s/a terms).

The main contributors to the forecast revision are survey indicators. They send mixed signals, though. On the positive side, there is the expectation of growth in industry wages, the rate of capacity utilisation and employment accompanied by production output in manufacturing. The negative forecast revision drivers are represented by the indices of expected input and output prices, along with trade balance and monetary aggregate M0.

In the next issue of this report, we will produce our final estimate of real GDP growth for 2Q15, and update our projection for 3Q15.

Figure 7: Our estimates of real GDP growth

To previous

year QoQ QoQ, S/A Annualised

1Q15 (actual) -2.2% -26.7% -2.9% -10.9% 1Q15 (vintage 5) -1.5% -26.0% -2.4% -9.3% 2Q15 (vintage 4) -2.6% 9.3% -0.2% -0.8% 2Q15 (vintage 3) -2.5% 9.4% -0.1% -0.4% 3Q15 (vintage 1) -0.8% 13.9% 1.7% 7.0% 1H15 -2.4%

Source: Rosstat, MinEcon, NES estimates, Renaissance Capital estimates

-2.6%

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Figure 8: Contributions to YoY real GDP growth, %


Russia’s economic activity contracted in 1Q15 at a faster pace than previously estimated. Rosstat revised its 1Q15 GDP growth estimate to -2.2% YoY from -1.9% YoY previously, i.e. closer to our initial expectations of a 2.4% YoY fall in GDP growth. This is the first negative GDP growth reading in YoY terms since 4Q09, which indicates that Russia has entered another crisis year.

We expect that both consumer and investment demand contracted sharply as we entered 2015. On our estimates, consumer demand could have fallen by 5.9% YoY in 1Q15 (after 1.0% YoY growth in 4Q14), being hit by negative real wage growth, weakening consumer sentiment and a shift in consumer activity to end-2014. We believe investment demand stayed in negative territory in 1Q15, contracting by 6.4% YoY (after a 1.2% YoY drop in 4Q14) in an environment of lower oil revenue, external deleveraging, very tight domestic credit conditions and elevated business uncertainty. We think government spending decreased by 1.5% YoY, contributing slightly negatively to growth.

Negative contribution to growth from inventory cuts could increase to 2.4 ppts in 1Q15 from 0.7 ppt in 4Q14. In our view, the destocking cycle will likely start again in 2015, in a weaker oil price environment. However, reductions in stocks this year should be much smaller than in the previous crisis of 2009: the economy has already cooled in the previous two years and stock levels have reached very low levels. We estimate that destocking might shave off no more than 2 ppts from Russian GDP growth this year, vs nearly 7 ppts in 2009.

Net exports contributed positively to growth due to a sharp contraction in imports. We estimate imports could fall by 26% YoY in 1Q15, with exports (as a domestic GDP component) declining by only 2.4% YoY. The continued deceleration in import growth is a result of subdued domestic demand performance and weaker currency, thus partially mitigating the negative external shock.

The sector breakdown shows that Russia’s 1Q15 growth drivers were dominated by mining/quarrying and agriculture. With Russian GDP growth falling into negative territory in 1Q15, only a few sectors provided fairly strong results. Growth drivers were dominated by mining/quarrying, which expanded by 4.9% YoY, and agriculture, which was up by 2.9% YoY. Notably, utilities was another sector providing a positive print (0.1% YoY), though its performance could be partly due to the supporting base effect.

Manufacturing and transport/telecoms were broadly flat. A fairly good sign, in our view, is that manufacturing declined marginally in 1Q15 (by 0.6% YoY). This is in contrast to the previous crisis, when manufacturing was the worst-performing sector in 1H09, contracting by more than 20% YoY.

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Private consumption Government consumptionGFCF ExportsImports InventoriesGDP growth

GDP growth

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Figure 9: GDP growth by industries, % YoY


Wholesale/retail, hotels/catering, finance, real estate activities and construction contracted noticeably. The wholesale/retail segment’s weak performance (-7.6% YoY) was the main drag on Russian GDP growth in 1Q15 (Figure 10). The pace of contraction in this sector’s economic activity is comparable to the drop in 1H09. However, this weak reading could be partly attributed to the temporary consumer boom at end-2014, which may have lifted the 4Q14 print at the expense of sector performance in 1H15. The hotels/catering segment also fell noticeably (-5.4% YoY), hit by a possible intention of consumers to give up particular services, as well as a general slowdown in consumption. Construction growth stayed negative for the eighth consecutive quarter, this time falling by 4.1% YoY. Finally, finance and real estate activities also performed much worse than before (-3.9% YoY and -3.3% YoY, respectively).

The data is generally in line with our -3.6% GDP growth estimate for 2015 (at $60/bl oil). Despite the generally better-than-expected macro performance at the start of the year, we maintain a cautious stance toward macro prospects in 2015, noting that we anticipate the negative factors stemming from the challenging environment will feed through into the economy with a lag. We expect the weakest quarterly GDP growth readings in 2Q15 and 3Q15, with GDP falling by 4.5% YoY and 4.1% YoY, respectively. For 2016, we expect GDP growth of 1.8% at $80/bl oil (our base case). If oil prices stay flat, we see growth turning only slightly positive (0.3%).

Figure 10: Contributions to YoY real GDP growth, %


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Manufacturing Trade, hotels & restaurants Finance & real estate activitiesConstruction Transport & telecoms UtilitiesPublic admin., health & education Mining & quarrying Agriculture & fisheryReal GDP, % YoY

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Figure 11: Industrial production growth, % YoY

Source: Rosstat

Figure 12: Industrial production components growth, % YoY

Source: Rosstat

Russian industrial output contracted heavily for the second month in a row. Industrial output growth decreased by 5.5% YoY in May, after a 4.5% YoY fall in April. The print largely surprised the market to the downside (-3.8% YoY, according to Bloomberg consensus), though it was only slightly weaker than our expectation of -5.1% YoY. This is the largest negative industrial production growth reading in YoY terms since October 2009. Although the headline print was partially affected by the negative calendar factor, it still signals to us that the risk of a noticeable GDP growth contraction in 2015 remains in place. In s/a terms, on official estimates, industrial output fell by 0.6% MoM in May, after a 1.6% MoM decrease in the previous month.

Manufacturing stayed deeply in the red. As in the previous month, industrial production growth was hit by particularly weak manufacturing performance. In May, manufacturing output contracted by 8.3% YoY after a 7.2% YoY drop in the previous month. Most sectors within the manufacturing sector posted poor results. The most noticeable declines were found in the production of equipment, construction materials and transportation, with production of vehicles falling by 38% YoY. In addition, last month manufacturing dynamics lost some gains from construction of the gas pipeline to China, which had boosted YoY readings in production of steel pipes during the past 12 months. Only food production provided generally strong results, thanks to ongoing import substitution, as well as particular segments within the chemical and textile industries, which also benefitted from a weaker currency.

Mining sector output remained broadly flat in May (-0.9% YoY after -0.8% YoY in the previous month), while utilities performed worse (-1.4% YoY after 1.8% YoY in April).

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Figure 13: Consumer demand indicators, % YoY

Source: Rosstat

Figure 14: Public and private sector wages, % YoY


Figure 15: Labour market indicators, % YoY

Source: Rosstat, REB, Renaissance Capital estimates

Consumer demand fell sharply in April, but capex was better than expected for the fourth consecutive month

Retail sales contracted sharply in April, hit by extremely weak wage dynamics. The decline in retail sales growth deepened further to 9.8% YoY in April, after a 8.7% YoY drop in March, surprising us (-7.2%) and the market (Bloomberg consensus: -8.3%) to the downside. This is a reiteration of the weakest monthly retail sales growth reading registered during the previous crisis in September 2009. In April, both food and non-food sales contracted heavily (by 8.9% YoY and 10.7% YoY, respectively).

Consumer activity at the start of 2Q15 continued to suffer from negative real wage growth, a shift in demand to end-2014 and weak consumer sentiment. Although we expect the fall in consumer spending to moderate in 2H15 on the back of lower inflation and recovering sentiment, we expect consumer demand to fall by 5.5% in FY15E, which compares with a 4.9% fall in 2009.

The drop in real wages growth deepened further to low-teens. In April, real wages fell by 13.2% YoY, according to preliminary estimates. The print was weaker than our expectation (-8.8%) and the market’s (Bloomberg consensus: -9.1%). Surprisingly enough, the fall in real wages deepened further despite lower annual inflation (by 0.5%) and was solely attributed to much weaker nominal wage dynamics. In April, nominal wages growth softened to only 1.0% YoY, compared with 4.5% in March and 8.1% in February. Generally, this year private sector wage growth dynamics look better than in the previous crisis of 2009, due to the domestic labour force shortage, but public wages provide much less support for the general nominal wage growth print (Figure 2). The latter evidence results from the restrictive government approach, which assumes a c. 5% public wage increase on 1 October 2014 (for the following 12 months) and flat wage growth from 1 October 2015 (for the 12 months after that).

The labour market remained quite tight, with the unemployment rate growing more slowly than expected. In April, the unemployment rate in s/a terms increased further by 0.1%, to 5.7%. The headline unemployment rate even declined marginally to 5.8% from 5.9% previously, which was better than our forecast (5.9%) and market expectations (6.0%, according to Bloomberg consensus). We maintain our view that the labour force shortage, attributed to unfavourable demographic trends, limits the room for a spike in unemployment in Russia during this crisis. We expect only a moderate increase in the unemployment rate this year, to 6.5%.

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Figure 16: Fixed investments and construction growth, % YoY

Source: Rosstat

The magnitude of contraction in capex eased further. In April, fixed investment growth fell by 4.8% YoY, which is the smallest decline registered since the start of the year. The print was better than our expectation (-7.3%) and the market’s (-6.6%, according to Bloomberg consensus). For FY15E, we expect fixed investments to fall by 9.8%.

The recent data probably reflects the authorities’ focus on the investment side during the current crisis. In our view, the April data could reflect to some extent the authorities’ approach in managing the current crisis. On the government side, the freeze in public wage indexations keeps nominal wages in the whole economy under pressure and shows the government is prepared for weakening consumer demand. However, this approach helps to tame import growth, providing additional support to the current account surplus. In addition, it could potentially ease pressure on companies’ personnel costs in the medium term, releasing additional resources for investment. On the CBR side, the proactive normalisation of policy rates helped make this year’s investment story less gloomy than we had suggested initially.

The April–May data also shows that recession deepened as we entered 2Q15, which was in line with our expectations. The data is generally in line with our -3.6% GDP growth estimate in 2015 (at $60/bl oil). We maintain a cautious stance toward macro prospects in 2015, noting that we expect the negative factors stemming from the challenging environment will feed through into the economy with a lag. We anticipate that the weakest quarterly GDP growth readings will occur in 2Q15 and 3Q15, with GDP falling by 4.5% YoY and 4.1% YoY, respectively.

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Figure 17: CBR interest rates corridor

Source: CBR

Figure18: CPI and its components, % YoY

Source: Rosstat

Figure 19: Weekly CPI, % WoW

Source: Bloomberg

The CBR cut the key rate by 100 bpts to 11.5% on 15 June 2015. All other interest rates were also lowered by 100 bpts. The decision was in line with our expectation and the market, with Bloomberg consensus assuming a 100-bpt rate cut (60% for 100 bpts, 23% for 150 bpts, 14% for 50 bpts).

The CBR’s decision was primarily driven by the need to alleviate the policy stance considering lower inflation risks and persistent growth risks. Better inflation behaviour was one of the main reasons for its decision. As in its previous statement, the CBR highlighted that the balance of risks has skewed more toward a pronounced cooling of the economy as inflation risks eased further. It noted that the run-rate of weekly inflation stabilised at 0.1% in May–June, with annual inflation declining to 15.6% YoY as of 8 June 2015. According to the CBR, the continued decline in inflation was due to lower consumer demand; previous rouble appreciation; tight monetary conditions; and the full adjustment of price growth to the Russian ban on EU food imports, introduced in August 2014. The CBR confirmed a sound inflation outlook and expects annual inflation to decline to 7% YoY by June 2016, hitting its 4% target in 2017. In this environment, the CBR could further ease its policy stance, without worsening mid-term inflation perspectives, as we suggested previously.

This 100-bpt rate cut could confirm that CBR priorities remain unchanged. We see the recent decision as a consistent move by the CBR, confirming that inflation-targeting remains its top priority, while its recently announced intention to replenish international reserves to $500bn could be a supplementary goal. On the flip side, the CBR could step in today with a smaller rate cut, or even refrain from policy easing, to create a more favourable environment for reserve accumulation, in our view. We still think a reserve-accumulation strategy may require a tighter interest-rate stance (currency purchases at higher oil prices will likely limit rouble appreciation and its favourable impact on inflation); but the CBR’s recent decision appears to confirm that its general policy approach should not change considerably.

With respect to economic activity, the CBR expects GDP growth to fall by 3.2% in 2015. According to its statement, major macro indicators show the economy has cooled further, including fewer new orders, continued declines in production capacity and labour force utilisation, and a certain rise in the unemployment rate. We are quite close to the CBR estimate, expecting GDP growth to fall by 3.6% in 2015, with oil remaining at $60/bl. The CBR has developed alternative scenarios for GDP growth in 2016. It expects 0.7% GDP growth with oil prices recovering to $70/bl by late-2016, or a continued contraction of 1.2% at $60/bl oil. We expect GDP growth to remain in positive territory in 2016 (0.3%) if the oil price stays flat, or to

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Figure 20: Inflation expectations indicators (% of respondents, answering the question “In the recent month, the prices were growing…”)

Source: Public Opinion Fund

recover to 1.8% at $80/bl oil (our base case), or to hit 1.0% at $70/bl oil.

Limited scope for rate cuts in upcoming months. In its statement, the CBR signalled that it is ready to continue the rate-cutting cycle if inflation remains under control, but specified that the scope of policy-easing could be limited in the next few months. In our view, this could mean that the CBR has already normalised monetary conditions, rolling off the major part of its unprecedented 650-bpt rate hike of 16 December 2014, aimed at taming rouble weakness without selling reserves. Talking about mid-term inflation risks, the CBR mentions:

1. external economic developments;

2. inflation expectations staying elevated in the medium term;

3. a review of planned increases in regulated prices and tariffs; and

4. a looser fiscal policy.

We maintain that the key rate could be cut to 10.0% by end-2015, but just to 6.5% by end-2016. We expect the CBR to continue the easing cycle in the next 1.5 years, in line with further improvement in inflation trends. We believe inflation will cool down to 11.1% at end-2015 and to 6.7% at end-2016. However, the recent CBR move is in line with our view that the pace of the easing cycle will likely slow in 2H15. We expect the CBR to bring the key rate gradually up to 10% at end-2015 and to 6.5% at end-2016. We see some downside risks to our key rate estimate for the end of 2015, but prefer to maintain our call regarding recent CBR rhetoric. The next CBR meeting on the key rate is scheduled for 31 July 2015. Preliminarily, we would expect the CBR to cut the key rate by no more than 50 bpts at its next meeting.

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… higher than previously … as alwaysother variants … slower than previously

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Figure 21: Russia – key economic indicators Ratings (M/S&P/F): Ba1/BB+/BBB- 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015E 2016E Activity Real GDP (% YoY) 7.3 7.2 6.4 8.2 8.5 5.2 -7.8 4.5 4.3 3.4 1.3 0.6 -3.6 1.8 Private consumption (% YoY) 7.7 12.5 12.2 12.2 14.3 10.6 -5.1 5.1 6.4 6.8 5.0 1.3 -5.5 2.0 Government consumption (% YoY) 2.4 2.1 1.4 2.3 2.7 3.4 -0.6 -1.5 1.4 2.6 1.1 -0.1 -1.9 -1.2 Investment (% YoY) 12.5 13.7 10.9 16.7 21.0 10.6 -14.4 5.9 9.1 6.7 0.9 -2.0 -9.8 3.5 Industrial production (% YoY) 8.9 8.0 5.1 6.3 6.8 0.8 -9.2 8.3 4.8 2.5 0.3 1.7 -3.2 2.4 Unemployment rate (% YoY) 8.2 7.8 7.2 7.2 6.1 6.3 8.4 7.5 6.6 5.5 5.6 5.3 6.5 5.9 Nominal GDP (RUBbn) 13,208 17,027 21,610 26,917 33,248 41,277 38,807 46,309 55,800 61,811 66,689 71,406 76,228 85,711 Nominal GDP ($bn) 430 591 764 990 1,299 1,658 1,224 1,523 1,898 1,994 2,091 1,850 1,326 1,620 Population (mn) 144.3 143.8 143.2 142.8 142.8 142.7 142.9 142.9 143.0 143.3 143.3 143.7 146.8 147.1 GDP per capita ($) 2,982 4,111 5,332 6,930 9,095 11,617 8,567 10,660 13,272 13,914 14,589 12,873 9,031 11,015 Gross domestic saving (% of GDP) 28.3 30.4 30.5 30.4 30.9 30.3 21.3 26.1 29.5 27.2 23.3 23.0 22.9 24.6 Stock of bank credit to corp/ households (RUBbn) 2,733 3,945 5,540 8,183 12,506 16,861 16,454 18,616 23,954 28,657 33,700 37,744 37,933 40,588 Stock of bank credit to corp/ households (% of GDP) 20.7 23.2 25.6 30.4 37.6 40.8 42.4 40.2 42.9 46.4 50.5 52.9 49.8 47.4 Deposits (RUBbn) 2,782 3,728 5,170 7,306 10,458 12,211 14,897 18,586 22,675 25,754 30,286 35,860 36,757 39,329 Loan-to-deposit ratio 98.2 105.8 107.2 112.0 119.6 138.1 110.5 100.2 105.6 111.3 111.3 105.3 103.2 105.1 Prices CPI (average % YoY) 13.7 10.9 12.7 9.7 9.0 14.1 11.7 6.9 8.4 5.1 6.8 7.8 14.8 8.1 CPI (end-year % YoY) 12.0 11.7 10.9 9.0 11.9 13.3 8.8 8.8 6.1 6.6 6.5 11.4 11.1 6.7 Nominal wages (monthly), RUB 5,499 6,740 8,555 10,634 13,593 17,290 18,639 20,950 23,532 26,803 30,234 33,106 34,794 36,221 Wage rates (% YoY, nominal) 26.1 22.6 26.9 24.3 27.8 27.2 7.8 12.4 12.2 13.9 12.8 9.5 5.1 4.1 Fiscal balance Consolidated government balance (% of GDP) 1.7 4.3 7.5 7.4 5.4 4.1 -5.9 -4.0 0.8 0.0 -0.8 0.8 -2.4 0.8 Total public debt (% of GDP) 29.8 22.5 14.8 8.9 7.1 5.2 9.4 9.6 9.9 10.0 11.4 14.4 14.7 15.2 External balance Exports ($bn) 136 183 244 304 354 472 303 401 522 528 523 494 379 453 Imports ($bn) 76.1 97.4 125 164 223 292 192 249 324 336 341 308 224 265 Trade balance ($bn) 59.9 85.6 119 140 131 180 111 152 198 192 182 186 156 187 Trade balance (% of GDP) 13.9 14.5 15.6 14.1 10.1 10.9 9.1 10.0 10.4 9.6 8.8 10.0 11.7 11.6 Current account balance ($bn) 35.4 59.5 84.6 94.7 77.8 103.5 48.6 70.3 98.8 71.4 34.1 59.5 58.3 82.9 Current account balance (% of GDP) 8.2 10.1 11.1 9.6 6.0 6.2 4.0 4.6 5.2 3.6 1.6 3.2 4.4 5.1 Gross FDI ($bn) 6.8 9.4 15.5 37.6 55.9 74.8 36.6 43.1 55.1 50.6 79.3 18.6 12.0 25.0 Gross FDI (% of GDP) 1.6 1.6 2.0 3.8 4.3 4.5 3.0 2.8 2.9 2.5 3.8 1.0 0.9 1.5 Current account balance plus FDI (% of GDP) 9.8 11.7 13.1 13.4 10.3 10.8 7.0 7.4 8.1 6.1 5.5 4.2 5.3 6.7 Exports (% YoY, value) 27.1 34.6 33.3 24.6 16.4 33.3 -35.8 32.3 30.2 1.1 -0.9 -5.7 -23.2 19.4 Imports (% YoY, value) 24.8 28.0 28.3 31.2 36.0 30.9 -34.2 29.7 30.1 3.6 1.7 -9.8 -27.4 18.7 Foreign exchange reserves ($bn) 76.9 125 182 304 479 427 439 479 499 538 430 385 340 359 Import cover (months of merchandise imports) 12.1 15.4 17.5 22.2 25.8 17.5 27.4 23.1 18.5 19.2 15.1 15.0 18.3 16.2 Debt indicators Gross external debt year-end ($bn) 186 213 257 313 464 481 467 483 545 636 729 594 507 476 Gross external debt (% of GDP) 43 36 34 32 36 29 38 32 29 32 35 32 38 29 Gross external debt (% of exports) 137 116 105 103 131 102 154 121 104 111 139 120 134 105 Total debt service ($bn) 28 44 59 85 107 148 87 100 109 128 143 130 101 91 Total debt service (% of GDP) 7 7 8 9 8 9 7 7 6 6 7 7 8 6 Total debt service (% of exports) 21 24 24 28 30 31 29 25 21 24 27 26 27 20 Interest & exchange rates Broad money supply (% YoY) 50.4 35.8 38.5 48.7 43.5 0.8 17.7 31.1 22.3 11.9 15.1 4.5 1.2 7.2 Refinancing rate year-end (%) 16.0 13.0 12.0 11.0 10.0 13.0 8.75 7.75 8.00 8.25 8.25 8.25 10.0 6.5 REPO rate year-end (%) 6.5 6.5 6.5 6.5 6.5 9.5 6.0 5.0 5.25 5.50 5.50 17.0 10.0 6.5 Deposit rate year-end (%) 0.5 0.5 0.5 2.3 2.8 7.25 4.0 3.0 4.00 4.25 4.50 16.0 9.0 5.5 3-month interest rate (MosPrime avg %) 7.8 7.2 4.9 5.1 5.9 9.8 13.7 4.3 5.1 7.1 7.00 10.5 14.0 9.5 3-month rates minus $-LIBOR 6.6 5.6 1.3 -0.1 0.6 6.8 13.0 4.0 4.8 6.7 6.8 10.3 13.5 8.0 Exchange rate (RUB/$) year-end 29.5 27.7 28.8 26.3 24.5 29.4 30.2 30.5 32.1 30.5 32.7 56.2 55.0 51.0 Exchange rate (RUB/$) annual average 30.7 28.8 28.3 27.2 25.6 24.9 31.7 30.4 29.4 31.0 31.9 38.6 57.5 52.9 Exchange rate (RUB/EUR) year-end 36.8 37.6 34.1 34.7 35.9 42.7 43.3 40.8 41.7 40.3 44.9 68.4 57.8 56.1 Exchange rate (RUB/EUR) annual average 34.7 35.8 35.2 34.1 35.0 36.5 44.1 40.3 40.9 39.9 42.4 50.9 62.1 56.9

Source: Rosstat, CBR, MinFin, Bloomberg, IMF, World Bank, Renaissance Capital estimates

11



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This research report has been prepared by the research analyst(s), whose name(s) appear(s) on the front page of this document, to provide background information about the issuer or issuers (collectively, the “Issuer”) and the securities and markets that are the subject matter of this report. Each research analyst hereby certifies that with respect to the Issuer and such securities and markets, this document has been produced independently of the Issuer and all the views expressed in this document accurately reflect his or her personal views about the Issuer and any and all of such securities and markets. Each research analyst and/or persons connected with any research analyst may have interacted with sales and trading personnel, or similar, for the purpose of gathering, synthesizing and interpreting market information. If the date of this report is not current, the views and contents may not reflect the research analysts’ current thinking.

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Disclosures appendix

Renaissance Capital research team

Head of Research David Nangle +44 (203) 379-7954 [email protected] Head of Russian Research Vladimir Sklyar +7 (495) 258-7770 x4624 [email protected] Head of Turkish Research Ilgin Erdogan +90 (212) 362-3530 [email protected] Head of Turkish Product Michael Harris +44 (203) 379-7982 [email protected] Head of SA Research Rey Wium +27 (11) 750-1478 [email protected]

Name Telephone number Coverage Name Telephone number Coverage Macro Oil and gas Charles Robertson +44 (203) 379-7835 Global Ildar Davletshin +7 (495) 725-5244 EMEA Yvonne Mhango +27 (11) 750-1488 Sub-Saharan Africa Temilade Esho +234 (1) 448-5300 x5363 Sub-Saharan Africa Oleg Kouzmin +7 (495) 258-7770 x4506 Russia/CIS Evgeny Stroinov +7 (495) 258-7770 x4046 Russia/CIS Equity Strategy Metals and mining Daniel Salter +44 (203) 379-7824 Global Johann Pretorius +27 (11) 750-1450 South Africa Michael Harris +44 (203) 379-7982 Turkey Steven Friedman +27 (11) 750-1481 South Africa Charles Robertson +44 (203) 379-7835 Global Kabelo Moshesha +27 (11) 750-1472 South Africa Vladimir Sklyar +7 (495) 258-7770 x4624 Russia/CIS Financials Anastasia Burkhanova +7 (495) 258-7770 x4594 Russia/CIS David Nangle +44 (203) 379-7954 EMEA Can Demir +90 (212) 362-3511 Turkey, Greece Diversified/Industrials Armen Gasparyan +7 (495) 783-5673 Russia, CEE Ilgin Erdogan +90 (212) 362-3528 Turkey Omair Ansari +234 (1) 448-5329 CEE Roy Mutooni +27 (11) 750-1469 x 1469 South Africa Ilan Stermer +27 (11) 750-1482 South Africa Seki Mutukwa +44 (203) 379-7736 Sub-Saharan Africa/MENA Adesoji Solanke +234 (1) 448-5300 x5384 Sub-Saharan Africa Ryan Ayache +971 (4) 401-9558 MENA Telecoms/Transportation Seki Mutukwa +44 (203) 379-7736 Sub-Saharan Africa/MENA Alexander Kazbegi +41 (78) 883-4527 Global Olamipo Ogunsanya +234 (1) 448-5300 x5368 Sub-Saharan Africa Artem Yamschikov +7 (495) 258-7770 x7511 Russia/CIS Consumer/Retail/Agriculture Media/Technology/Real estate David Ferguson +7 (495) 641-4189 Russia/CIS, Africa David Ferguson +7 (495) 641-4189 Russia/CIS, Africa Robyn Collins +27 (11) 750-1480 South Africa Ahmed Motara +27 (11) 750-1458 South Africa Mete Ozbek +90 (212) 362-3505 Turkey Seki Mutukwa +44 (203) 379-7736 Sub-Saharan Africa/MENA Zaheer Joosub +27 (11) 750-1427 South Africa Kirill Panarin +7 (495) 258-7770 x4009 Russia/CIS, Africa Nazmiya Ebrahim +27 (11) 750-1431 South Africa Kirill Panarin +7 (495) 258-7770 x4009 Russia/CIS, Africa Luxury goods and tobacco/Beverages Omair Ansari +234 (1) 448-5329 Sub-Saharan Africa/MENA Rey Wium +27 (11) 750-1478 Global/South Africa Olaloye Oyawoye +234 (1) 448-5300 x5377 Sub-Saharan Africa/MENA Utilities Non-financials Vladimir Sklyar +7 (495) 258-7770 x4624 Russia/CIS Digvijay Singh +44 (741) 523-2451 MENA Anastasia Burkhanova +7 (495) 258-7770 x4594 Russia/CIS

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