![]() Investment will further weaken due to a generally unfriendly environment for foreign investors in the country that will remain in place over the medium term. As a result of declining oil revenues, we anticipate the government's propensity to support investment will decline. This represents a considerable decline from the average price of USD99/bbl recorded in 2022 which, on top of the price caps on Russian energy exports, will place further pressures. However, revenues from the volumes sold are likely not to recover indeed, our oil and gas team forecast that Brent crude will average USD85/bbl for 2023 and USD83/bbl in 2024. As such and barring an unforeseen global recession, it is likely that energy export volumes will remain robust and growth supportive for most of the year. It appears also that India and China alone have been able to absorb the excess supply of Russian oil that would have ordinarily gone to Europe ( see LHC above). Russian oil exports hit a post-invasion high in May 2023, with almost 80% of crude shipments flowing to Mainland China and India. We had expected that both fuel and crude to have suffered due to insufficient foreign demand but this has proven not to be the case. While oil export volumes have continued to rise, government revenues from the sector have been squeezed due to price caps on Russian energy exports ( see LHC below). We doubt, however, that the authorities will be able to use government interventions to prop up the domestic economy later in 2023. However, we caution that risks remain weighed to the downside due to a weak investment outlook and the hit to government oil revenue caused by the G7 oil price cap. We have revised up our growth view for Russia from -3.5% to -1.3% to account for the better-than-expected Q123 numbers. In our view, these dynamics largely counterbalanced the impact of population decline (between 500,000 and 1 million people have left since February 2022). While a full breakdown is not yet available, we believe that the external sector added momentum to the economy given continued rise in volumes of exports, particularly of oil and gas. The Russian economy contracted by just 1.9% in Q123, a slight improvement on the 2.7% fall in output recorded in Q422 and a much better performance than the 2.1% decline expected by Bloomberg consensus. It appears that the effects of tough sanctions against Russia have so far been milder than expected, but we caution that risks to our growth view remain on the downside. High frequency data have been mixed, with export volumes stronger than expectations, while government and corporate revenues have fallen.As a result, we have revised up our 2023 GDP forecast from a contraction of 3.5% to a contraction of 1.3%. ![]() ![]() The Russian economy contracted by 1.9% y-o-y in Q123, which was less than the 2.1% fall projected by the Bloomberg consensus and an improvement compared to the 2.7% decline recorded in Q422.
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