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[loganair] 14/12/2015 14:06

Last Friday, the Finance Ministry reported that the federal budget ran a deficit of RUB897 bln, or 1.3% of GDP, in 11M15 versus RUB646 bln, or 1.1% of GDP, in 10M15. The 10M15 budget balance was revised, as in October the budget ran a surplus of RUB2.5 bln compared to the RUB58.1 bln deficit reported before. In November, the budget ran a deficit of RUB250.2 bln. In 11M14, the budget ran a surplus of almost RUB1.3 tln, or 1.9% of GDP.

[loganair] 14/12/2015 14:05

A tough week for the Russian market. The Russian market suffered losses last week, negatively reacting to downward moves in the oil market and a weakening ruble. The last trading session of the week ended with a 2% loss for the RTS index. The index lost 4.8% for the week, sliding below the 800 mark. Brent dropped below $40/bbl last week after OPEC's November production data showed output at the highest level in three years. On Friday, Brent futures fell as low as $37.36/bbl intraday before closing near a six-year low. The CBR left the key rate unchanged at 11% on Friday, as we and most market participants predicted. The CBR attributed its decision not to reduce the key rate to risks of a further cool-down in the economy and higher inflation. The ruble continued to slide after the decision in response to weak oil prices, ending the day below the RUB70/$ mark.

[loganair] 11/12/2015 09:36

Yesterday Rosstat reaffirmed its initial estimate that the economy contracted 4.1% YoY in 3Q15 after the 4.6% YoY drop in 2Q15. The slight improvement in 3Q15 makes it appear that the economy may have bottomed out in 2Q15. Nominal GDP reached RUB19.3 tln in 3Q15 and RUB53.4 tln in 9M15. The economy shrank 3.7% YoY in 9M15.

[loganair] 10/12/2015 17:32

Danske Research Team - Russia’s economy set to grow marginally in 2016

•We raised our 2015 GDP forecast to -3.9% y/y on 20 November 2015, from a 6.2% y/y fall previously, as economic contraction caused mainly by the oil price crash and aggressive monetary policy (rather than the effect of sanctions) is turning out to be more limited than expected due to the introduction of the free float regime and the start of import substitution.

•We see that the Bank of Russia’s (CBR) dovish monetary stance and freely floating currency regime remain supportive for our 2016 GDP growth forecast (0.5% y/y). Yet, new downside risks to our forecast have arisen on geopolitics.

•We expect 2017 GDP to expand 1.8% y/y on a lagging rate cut effect, leading to recovery in fixed investments and the continuing strengthening of industrial production.

•We remain moderately bearish on the rouble, expecting the USD/RUB to climb to 71.00 (3M) on the Fed’s possible monetary tightening, to 72.50 (6M) on weak oil and converging to 73.00 (12M), which is justified by a 12M average Brent price between USD54/bl and USD59/bl.

•Potential upside risks to our macro outlook are a higher oil price, easier monetary policy, expansionary fiscal policy under the parliamentary elections and the revoking of sanctions, which would improve sentiment and allow for cheaper external financing.

•An escalation of geopolitics and a tumbling oil price on worse-than-expected emerging market sentiment are downside risks for our GDP growth forecasts.

Russia’s economy preparing for takeoff:

The Russian economy continues to shrink on an annual basis, falling 3.7% y/y in October and over January-October 2015, versus -4.1% y/y in Q3 15, as a continued weak oil price, the lagging effects of aggressive monetary policy, high inflation, increased capital costs and falling investment in the challenging geopolitical situation all weigh on the main macro indicators. However, the supply-side indicators touched the bottom in Q3 15 and the path of contraction is slowing. Seasonally adjusted data shows the economy grew 0.1% m/m in October, while the positive seasonally adjusted dynamics have been uninterrupted over the past four months. Monthly basis data signals that economic turmoil is settling down and the economy is preparing for a take-off that we expect to be Lshaped rather than a V-shaped, on further oil weakness and expectations of too-cautious monetary easing while inflation risks prevail.

We have raised our 2015 GDP forecast to -3.9% y/y, from the -6.2% y/y we released in May 2015, as economic contraction caused mainly by the oil price crash and aggressive monetary policy (rather than the effect of sanctions) is turning out to be more limited than expected due to the introduction of the free float regime and the start of import substitution. We keep our 2016 GDP growth forecast unchanged at +0.5% y/y, as we expect the Brent price to recover 7% to USD59/bl in 2016 seeing downside risks for our forecast on extra slow monetary easing. We expect 2017 GDP to expand 1.8% y/y on a lagging rate cut effect leading to recovery in fixed investments and the continuing strengthening of industrial production. However, oil price volatility, the geopolitical environment and the CBR’s interventions remain sources of economic insecurity.

Macro indicators have passed the worst:

Russia’s major macro indicators remained in negative territory over January-October 2015 due to the continuing effect of the double shock, while the economy is showing clear signs of adjustment to the new normal. Fixed investments shrank 5.7% in January to October 2015, while in October the seasonally adjusted number posted growth of 0.4% m/m for the first time in 2015. Private consumption dived 9.8% y/y over 10M, while the seasonally adjusted figure was also negative (-1.2% m/m in October), as corporations and households kept their net savings on high key rates and falling real income.

Although industrial production remained in negative territory as manufacturing continued to shrink, it fell less than in H1 15. Mining and quarrying expansion continue (+0.3% y/y for 9M 15), while growth in rail freight of construction materials signals the start of a recovery in the production of construction materials. The freely floating rouble supports Russian exporters who are expanding production of chemicals (+6.9% y/y for 10M 15) and rubber goods (passenger car tyre production grew 9.1% y/y in 10M 15). Russia’s counter-measures banning food imports from western economies continue to help food production, which grew 1.8% y/y in 10M, with cheese production rising almost 40% y/y. Good news continues to flow from the agricultural sector, which increased 7.7% y/y in October, expanding 3% y/y for 10M. Yet, the food processing industry has a lack of capacity on shrinking fixed investments.

The weakened oil price and the rouble’s relative strength continued to subdue capital outflows after a significant spike in Q4 14 (see Chart 3) pushing net flows into positive territory in Q3 15 for the first time since 2010. In 2014, capital outflows exceeded USD150bn, slowing down to USD52.5bn in H1 15. We expect the total 2015 outflow to fall to USD55bn, as the ongoing adjustment in the economy has eased pressure for an FX run while we expect the supply-side shock effect to continue to ease. However, the new geopolitical risks related to deteriorating relations between Russia and Turkey could pose a significant risk due to uncertainty about capital flows.

[loganair] 10/12/2015 07:29

Magnit (JRS 3rd Largest Investment) released a trading update for November yesterday which showed revenue growth slowing relative to October across all segments. Total revenues rose 17.0% YoY to RUB78.2 bln ($1.2 bln), marking a 2.4 ppt decline in revenue growth compared to the previous month. Sales growth at convenience stores, the main segment, decelerated 0.8 ppt MoM to 15.8% YoY, exceeding consumer inflation by a mere 0.8 ppt, on revenues of RUB58.2 bln ($0.9 bln). Sales at Magnit hypermarkets rose 1.6% YoY to RUB12.3 bln ($189 mln), with growth down 6.5 ppt MoM, while sales at Magnit Family stores rose 48.1% YoY to RUB3.8 bln ($59 mln), 10.5 ppt slower than in October. As for the "hardware" segment, revenues grew 103% YoY to RUB3.8 bln ($59 mln). Magnit CEO Sergey Galitskiy commented that improving revenue growth will be a top priority for the company going forward.

[loganair] 08/12/2015 08:05

Slumping oil sends Russian stocks and the ruble lower - The Russian market was pressured by falling oil prices and a weaker ruble. The RTS index fell below the 800 mark, losing 2.3% by the close and reaching the lowest level in two months. Oil was the main driver: Brent plummeted 5.3% yesterday and reached the lowest level since February 2009 in response to OPEC's decision not to take measures to stabilize oil prices. This sank the ruble, sending it past the RUB69/$ mark. The ruble's depreciation makes it look even less likely that the CBR will cut the key rate at its Board meeting on Friday, the last of the year. The rate cut will likely be pushed back until at least the next meeting in January.

[loganair] 05/12/2015 21:24

(UPI) -- Russia mulls economy beyond oil

Russia needs to explore export revenue from products outside the energy sector as the economy braces for a long period of low oil prices, a minister said.

"Unfortunately, we have entered a rather long period, when commodity prices are not as high as over the last 10-15 years," Russian Economic Development Minister Alexei Ulyakayev lamented.

Russia relies heavily on exports of oil and gas for government revenue, leaving its economy vulnerable to lower energy prices. Crude oil prices are 35 percent lower than this date in 2014.

Crude oil prices are lower in part because the increase in global production is more than a weakened economy can absorb.

Gazprom Neft, a division of Russian energy giant Gazprom and the country's fourth-largest crude oil producer, said, however, that production volumes of 436.4 million barrels of oil equivalent represented a 22.2 percent increase year-on-year. The company credited the gains in part to an increase at its arctic Prirazlomnoye field.

Ulyakayev said the ministry needs to develop an economic foundation outside the energy sector if it's to endure the weakened oil economy.

Russian President Vladimir Putin told members of the Federal Assembly earlier this week the current economic situation was complicated but "not critical."

"We must be prepared for low commodity prices and external restrictions to last much longer," he said. "By changing nothing, we will simply run out of reserves and the economic growth rates will linger around zero."

The central bank this week added Russia is pressured further because sanctions restrict borrower access to Western financial markets.

The inflation rate as of October was 15.6 percent. The Central Bank of Russia has set a goal of 4 percent by 2017.

[loganair] 04/12/2015 12:24

The rouble was marginally positive, though it remains on track for a weekly loss of 1.7 percent. Oil prices edged higher ahead of an OPEC meeting, and Moody's raised the outlook on Russia's credit rating to stable from negative.

The ratings agency said there was a diminished likelihood of the Russian economy facing a further intense shock in the next 12-18 months.

The ruble headed for the biggest weekly drop in emerging markets as GL Financial and Raiffeisen Asset Management said the exchange rate may have further to fall as the low price of oil and sanctions against the country persist.

The currency pared initial losses to trade little changed against the dollar to 67.4309 by 1:53 p.m. in Moscow, taking its decline in the week to 1.4 percent. The price of Brent, the benchmark for Russia’s main export blend, traded at a six-year low this week as representatives from OPEC oil-producing nations weren’t expected to agree Friday on ways to boost the price of the commodity.

Russia, which derives almost 50 percent of its budget revenue from oil and natural-gas exports, is pumping crude at near-record levels as it weathers its first recession since 2009 exacerbated by sanctions over the country’s role in the conflict in Ukraine. The price of crude in rubles sank to its lowest since 2011 last month and is trading 10 percent below its average for the past 12 months.

“The ruble is too expensive and could easily fall to 70," Sergey Vakhrameev, a money manager at GL Financial, which oversees about $100 million in assets, said by phone from Zurich. “We saw a significant drop in the price of oil this week which weighed on the ruble and I don’t expect the OPEC meeting to result in major output cuts.”

Vladimir Vedeneev, chief investment officer of Raiffeisen Asset Management in Moscow, also regards the ruble as overvalued and said a level of 70 would be "comfortable" for the budget relative to the current oil price. The ruble hasn’t kept up with the drop in oil this quarter, an imbalance that translates into reduced government revenue from the nation’s top export earner in local-currency terms.

Crude traded 1.4 percent higher on Friday at $44.47 a barrel after touching $42.49 earlier in the week as members of OPEC met in Vienna. A decision on output is expected to be announced later Friday.

Five-year generic government bonds were little changed on Friday, with the yield at 10.07 percent after Russia’s credit-rating outlook was raised on Thursday to stable from negative by Moody’s Investors Service. The ratings agency cited a stabilization of external finances and a diminished likelihood of the economy facing a further “intense shock” in the next 12 to 18 months after being sanctioned over Ukraine.

[loganair] 01/12/2015 09:06

Lukoil (JRS 10th Largest Investment), Russia’s largest oil producer after Rosneft, beat Ebitda expectations even as oil prices tumbled and exploration wells off Romania failed. Cash flow has been boosted by the ruble’s devaluation, Vice President Leonid Fedun said Monday on a conference call. The currency averaged 62.98 to the dollar in the third quarter compared with 36.19 a year earlier, the company said.

3Q15 EBITDA down only 37% YoY in dollars, released 3Q15 US GAAP results and held an analyst meeting with management yesterday. Revenues, including export duties and excise taxes, declined by 40% YoY and 17% QoQ to $23.4 bln, in line with the consensus. EBITDA, defined as operating profit plus DD&A, declined by 37% YoY and 6% QoQ to $3.56 bln, 9% above the consensus. The EBITDA margin widened by 0.7 ppt YoY and 1.7 QoQ to 15.2%. Net income declined by 62% YoY and 38% QoQ to $0.6 bln, 22% below the consensus and our estimate. The net margin shrank by 1.5 ppt YoY and 0.9 ppt QoQ to 2.7%.

The shares rose as much as 1.3 percent in Moscow, and were up 0.9 percent at 2,561.2 rubles as of 4:51 p.m. local time. The stock has gained 15 percent this year.

“The company is in an excellent position to at least sustain 2015 dividends,” Alexander Nazarov, an oil and gas analyst at Gazprombank, said by e-mail. Lukoil generated $1.5 billion of free cash flow in the three months through September, the biggest volume in at least nine quarters, he said.

The company’s cash flow shows it has sufficient funds for dividends, Fedun said. The payout on 2015 earnings may increase from a year earlier in ruble terms, he said.

Lukoil reported a 1.1 percent increase in oil and gas production to 2.37 million barrels a day in the quarter. Oil and liquids output climbed 1.5 percent to an average 2.07 million barrels a day as growth in Iraq helped counter declining volumes from the West Siberia division, Lukoil’s largest Russian production unit.

Revenue from Iraq’s West Qurna-2 project was $2.42 billion for the first nine months of the year. Earnings from the country as a whole held steady from the previous quarter, showing that volumes can be increased to offset declining oil prices, Alexei Kokin, an analyst at Uralsib Financial Corp., said by e-mail.

Lukoil sees oil prices at $50 a barrel next year, Fedun said. That compares with Brent crude at about $45 currently.

[loganair] 22/11/2015 18:53

After three years of disappointment, emerging markets are about to turn the corner, Goldman Sachs predicts.

As growth picks up and weaker currencies help alleviate economic imbalances, “2016 could be the year emerging market assets put in a bottom and start to find their feet,” strategists led by Kamakshya Trivedi wrote in a note Thursday.

“There is the prospect of improved growth and better returns, even if it is not a rerun of the roaring 2000s.”

Some countries are better positioned than others.

While South Africa, Colombia, Turkey and Malaysia still need to tackle their current-account imbalances, Russia, India and Poland are among nations that have improved enough for their assets to rally, according to Goldman Sachs.

The New York-based firm is joining a handful of investors who have become more upbeat about developing economies after their currencies fell to record lows and stocks trailed developed-market peers by 51 percentage points over the last three years.

Franklin Templeton has said the selloff has opened up buying opportunities not seen for decades.

Goldman Sachs predicted that developing countries will grow 4.9% next year, from an estimated 4.4% in 2015, marking the first acceleration since 2010.

While it is still below the long-term trend, the improvement can only help boost investor confidence given the current “widespread bearishness,” the analysts wrote.

“We would part ways with the extreme pessimism that we sometimes encounter about the long-term prospects for emerging market assets,” they said.

Goldman Sachs said the biggest risk is a “significant depreciation” of the yuan. A stronger dollar and slower growth in China may prompt policy makers to allow the currency to fall with a spillover effect rippling through emerging markets, the report said.

“In our view, the fallout from such a shift is the primary risk,” the analysts said.

[owenski] 22/11/2015 11:17

Thanks for the posts Logonair

Chart looks interesting from my point of view am inclined to take a position here

[loganair] 21/11/2015 22:14

The Russian Central Bank upped its gold reserves by yet another 600,000 ounces (18.7 tonnes) in October bringing its year to date total to 165 tonnes and if the buying pace continues in November and December it will take in 200 tonnes this year – a new record. The previous record was in 2010 when it increased its gold reserves by 176 tonnes – so it is not far short of this already.

Interestingly Russia is announcing purchases at a higher monthly rate than China, the other big current gold buyer, but there have to be continuing doubts about the veracity of the Chinese figures judging by its prior non-reporting of its gold purchases for years at a time. Since June it has been reporting its gold holdings increases on a monthly basis for the first time, but prior to that there were five and six year gaps between reported increases. The suspicion is that China only reports what it feels is expedient for Western nations to know, and many believe the real figures are far higher with increases in gold reserves being hidden in non-IMF-reportable accounts.

But there’s little or no doubt that overall Chinese gold demand as demonstrated by gold withdrawals out of the Shanghai Gold Exchange (SGE) remain very strong indeed. The latest announced figures, for the week ended November 13th, saw a further 49 tonnes of physical gold drawn out of the Exchange bringing the year to date total to 2,259 tonnes. This is 374 tonnes more than at the same time in the previous record year (2013) when the full year gold withdrawals total was 2,181 tonnes – already comfortably exceeded with around six full trading weeks still to go..

With Chinese internal demand remaining so high – and the Chinese and Russian central banks buying around 400 tonnes a year combined (possibly more if China is continuing to play statistical gold mind-games with the West) supply/demand fundamentals are going to be under pressure – even as the gold price continues to weaken ahead of the likely US Fed decision to start raising interest rates generally expected to happen in December. One should have expected the likely interest rate decision to have already been accounted for in the weaker gold price, but the longer the decision has been postponed the more the adverse effects of a forthcoming increase seem to have on gold. Perhaps the actual event will lead to a more stable gold price environment with the fundamentals beginning to play a more important role from then on with continuing uncertainty taken out of the equation.

[loganair] 20/11/2015 22:27

Goldman Sachs advises to buy Russian ruble in 2016 - The US investment bank predicts the ruble will be on the list of good performing currencies next year along with the US dollar and the Mexican peso, Bloomberg reports.

Goldman Sachs recommends buying Russian and Mexican currencies.

“Ruble assets have found useful support over the last week on a perceived rapprochement between Russia and the West. This relationship may, however, will be tested over the coming days and weeks as fundamentals continue to be weak, oil prices remain under pressure and a December Fed liftoff seems increasingly likely,” Ivan Tchakarov, economist at Citigroup told Bloomberg.

[loganair] 19/11/2015 09:46

I do not like making predictions on share prices, however in my good opinion unless something catastrophic really happens we'll be unlikely to see sub 300p again as the recession in Russia seems to have bottomed out and I am looking forward to 400p again.

This is why I have reduced my monthly investment in JRS in favour of JPB (Brazil) as Brazil is still deeply mired in their recession.

[loganair] 19/11/2015 09:41

Recession looks to have bottomed in 2Q15 - Data recently published by Rosstat showed several key economic indicators improving slightly in September. Industrial production contracted 3.7% YoY in September after falling 4.3% YoY in August, supported by manufacturing, while capital investment declined just 5.6% YoY in September after dropping 6.8% YoY in August. Cargo turnover growth accelerated to 0.8% YoY in September from 0.1% YoY in August. Construction sector output was down only 9.1% YoY in September compared with a 10.7% YoY decline in August, while agricultural output grew 4% YoY in September after expanding just 2.3% YoY in August. However, consumer demand still appears to be very weak, as the decline in retail trade accelerated to 10.4% YoY in September from 9.1% YoY a month earlier as retail lending continued to shrink.

[loganair] 18/11/2015 22:12

The current easing in tensions between Russia and the West is prompting foreign investors to make fresh assessments of Russian assets.

Amid the easing tensions between Russia and Western countries, foreign investors are taking a fresh look at Russian assets. Swedbank Robur in Stockholm purchased shares in Russian state-owned companies, and NN Investment Partners in The Hague said it was reconsidering its stance on Russian stocks after the G20 summit brought Russia and the US closer to cooperation against terrorism.

"Russian stocks rallied the most worldwide on Tuesday after stocks and bonds gained on speculation the rapprochement would lead to an easing of sanctions over the Ukraine conflict," the article read.

"Russia is no longer seen as a villain like a year ago. The political risk that was priced into Russian assets is declining. Foreigners, who were mostly underweight Russia, are now buying Russian blue chips in a panic," Elena Loven, a portfolio manager at Swedbank Robur, was quoted as saying in an article.

According to the article, if Russia and the US find common ground the stakes for investors could potentially change. Up to now, investors have been pricing in the risk that the Ukrainian crisis could flare up again and prolong sanctions.

Standard & Poor’s said Tuesday that an easing in tensions between Russia and the West would create grounds for reconsidering Russia’s sovereign rating if sanctions against Moscow are lifted.

"I’m warming up to the idea of putting a bit of money back into Russia," Maarten-Jan Bakkum, a senior emerging-markets strategist at NN Investment Partners, was quoted as saying by Bloomberg. "There’s probably a higher likelihood that Putin will have a better relationship with the West for pragmatic reasons and we should see that reflected in asset prices."

[loganair] 18/11/2015 21:17

Industrial production continues to improve - Data published by Rosstat yesterday showed that industrial production grew 5.2% MoM in October after increasing 3.4% MoM in September, with the YoY decline easing to 3.6% in October from 3.7% in September. The YoY figure was again above market expectations (the Interfax consensus forecast was for a 4.1% YoY contraction). Meanwhile, the seasonally adjusted MoM figure returned to negative territory, dropping to minus 0.1% in October from positive 0.6% in September. All-in-all, industrial production fell 3.3% YoY in 10M15.

[loganair] 18/11/2015 21:14

EBITDA grew 144% YoY. Yesterday Phosagro (PHOR LI – Buy) (JRS 9th Largest Investment)pub-lished 9M15 IFRS results. The results were solid supported by weak ruble and output growth. Revenue grew 64% YoY to RUB142 bln, EBITDA grew 144% YoY to RUB63 bln, while the EBITDA margin expanded 15 ppt YoY to 44%. Despite a RUB12.5 bln non-cash FX loss, Phosagro reported a RUB32 bln net profit, which grew almost five-fold YoY. Phosagro’s BoD recommended an interim dividend of RUB8.2 bln, which represents RUB63/share (about 2% the non-annualized dividend yield).

[loganair] 16/11/2015 09:59

Revenues growth improves again in October - Sales growth accelerates 2.2 ppt to 19.2% YoY in October. DIXY Group (JRS 12th Laregest Investment) released a good trading update on Friday for the month of October, as once again revenue growth accelerated month-on-month. Growth in consolidated revenue increased 2.2 ppt MoM to 19.2% YoY to RUB23.2 bln ($367 mln). DIXY division’s revenues reached RUB18.9 bln ($299 mln), implying YoY growth of 21.5%, which excelled both better the 19.5% YoY growth posted last month and the 16.6% YoY growth of the convenience store division of Magnit. The Victoria and MegaMart divisions increased their sales by 11.7% YoY to RUB2.8 bln ($44 mln) and by 6.4% YoY to RUB1.5 bln ($24 mln), both also accelerating over the previous month.

[loganair] 16/11/2015 09:57

Federal budget revenues ahead of full-year target in 10M15 - Budget deficit stayed at 1.2% of GDP in 10M15. Last Friday the Finance Ministry reported that the federal budget ran a deficit of RUB707 bln, or 1.2% of GDP, in 10M15 versus RUB648 bln, also 1.2% of GDP, in 9M15 (the 9M15 figure was revised upward from a deficit of RUB789.6 bln, or 1.5% of GDP). The budget ran a deficit of RUB58.1 bln in October.

[loganair] 11/11/2015 19:58

Russia's Economy: What Do the Numbers Tell Us?

Before the Bolshevik revolution, Vladimir Lenin supposedly said “the worse the better.” Essentially what he meant was that the more conditions deteriorated under the Russian czar (and in its aftermath) the more likely the Bolsheviks would obtain power. In this, Lenin was quite prescient.

Today, the Russian economy has fallen into a “worse” phase. The collapse in oil prices, coupled with economic sanctions, has significantly impaired economic growth. The question is: How bad is it, and what are the future prospects for recovery?


In short, the prospects currently look dismal. Even a rapid and sustained resuscitation in energy prices is unlikely to restore growth to levels experienced earlier this decade. Let’s glance at the numbers (see above for graph):

One striking fact is that Russian growth started to decline rapidly in 2012 Q1, well before oil prices fell or economic sanctions took hold. Growth had plunged to approximately one percent before either phenomenon occurred.

Russia’s 4 percent GDP growth rate was largely manufactured by enormous growth in consumer credit, which was not sustainable. The World Bank estimates that, by 2017, Russia’s real GDP will be smaller than it was in 2012.

The Russian economy is seriously dependent on energy. Approximately 70 percent of its exports are hydrocarbons, and 50 percent of government revenue comes directly from the oil sector. Given this addiction, the exchange rate has collapsed to 62 rubles per dollar (as of October 2015), compared with its average of 29 rubles per dollar for the 10-year period preceding last year’s decline. Over the last year, inflation has increased from 7.8 to 15.8 percent.

After being in surplus as recently as 2012, Moscow’s budget deficit is expected to run 4.5% of GDP in 2015. This is an enormous swing over a short period of time. According to Moody’s, the Russian Finance Ministry plans to pull more than 2 trillion rubles from one of its two sovereign wealth funds to cover the shortfall. Finance Minister Anton Siluanov said Russia could exhaust both its funds in less than two years if it continues to rely on the reserves to balance the budget.

The Russian Central Bank Governor stated that international reserves stood at $370 billion in early October, down from last year’s high of $510 billion. After crowing about an investment-grade sovereign debt rating for several years, Russia saw both Standard & Poor’s and Moody’s downgrade its rating this year.

Meanwhile, consumption spending has fallen at its fastest pace since the 1998 crisis--contracting 7.5 percent in the second quarter. And the poverty rate has risen by two percent in just the last four quarters. Twenty-two million Russians now live in poverty.

While it is true Russia’s population has stabilized in recent years, that’s only because birth rates were relatively high during the 1980s. With birth rates collapsing during the 1990s, Russia’s population decline is set to quickly accelerate soon.

The economic sanctions imposed after the invasion of the Crimea peninsula have produced deeper damage than anyone expected. Strict sanctions from many western countries have prevented Russian companies from raising money in Europe and the United States and have also blocked arms trades.

The drop in the value of trade is indicative of the collapse in economic activity. During the first eight months of this year, imports have declined by 39 percent while exports have dropped by almost 30 percent.

Looking longer term, without deep and sustained structural economic reforms, Russia, now classified as a high-income country by the World Bank, faces a bleak future. Snow blanketed Moscow the first week in October. Russians should prepare for a long winter.

As for that classic Lenin quote, it sparks the question: Will history repeat itself? Russia had hoped to cut its defense spending—but given its campaign in Syria (and its earlier incursion into Ukraine), that has proved problematic. Vladimir Putin’s poll ratings are still high in Russia. But unless the economic fundamentals improve, such high poll numbers could be short lived.

[loganair] 11/11/2015 19:53

October sales up 19% YoY. Magnit (JRS 3rd Largest Investment) released an October trading update yesterday. The growth levels posted were about the same as in September. Total revenues rose 19.4% YoY to RUB79.0 bln ($1.3 bln), accelerating 0.1 ppt from the previous month. Sales growth at convenience stores, the main segment, accelerated 0.3 ppt MoM to 16.6% YoY on revenues of RUB58.8 bln ($0.9 bln), exceeding general consumer inflation by 1.0 ppt. Sales at Magnit hypermarkets rose 8.1% YoY to RUB12.5 bln ($198 mln), with growth decelerating 1.4 ppt MoM, while sales at Magnit Family stores rose 58.6% YoY to RUB3.8 bln ($61 mln). The cosmetics segment saw revenues increase 119% YoY to RUB3.9 bln ($62 mln).