Macro stability to prioritize — Valdai Club

Despite the raging pandemic, 2021 would have seen solid gains had it not been for the escalating geopolitical risks associated with Russia’s standoff with Ukraine. This sharp increase in geopolitical uncertainty erased a significant portion of earlier gains in the Russian stock market and raised the specter of lingering fragilities and uneases over 2022. revealed over 2021 – including the energy crisis/shortages, new waves of the pandemic and changes in the tax regime.

Nevertheless, there could be important drivers for Russian markets in the coming year, with the overall macroeconomic backdrop expected to show decent growth and lower inflation from the second quarter. With inflationary pressures moderating, the CBR is expected to start lowering its policy rate in the second half of next year, with macro fundamentals likely allowing for some fiscal expansion to support growth.

Overall, Russian economic policy is unlikely to deviate from the focus on reserve accumulation and macroeconomic stability. In the second half of 2021, the Russian government decided to raise the threshold of the National Welfare Fund from 7% of GDP to 10% of GDP, increasing the possibility of accumulating reserves rather than spending them. However, with relatively high oil and gas prices, the 10% of GDP threshold could be breached in 2023, consistent with our current baseline oil price forecast. In this case, spending these excess revenues to stimulate the economy could provide an additional boost to growth.

The prevailing paradigm will nonetheless continue to favor macroeconomic stability, which likely means more rate hikes early next year from the CBR and continued tight fiscal policy. This is unlikely to change in favor of pro-growth policy until a significant de-escalation of geopolitical risks occurs. The pandemic factor could still prove more persistent than expected and prompt the need for support measures as has been the case during new waves of the Covid pandemic this year.
Given developments at the end of 2021, the balance of risks and drivers for next year appear to be tilted towards caution, with a drastic resolution of geopolitical uncertainty unlikely in the very near term. Nonetheless, there could be a number of drivers that could lighten the investment landscape in Russia next year, in particular:

  • Economic recovery underway
  • Key rate cut and inflation in H2 2022
  • High commodity prices support exports, fiscal accounts and the ruble
  • Consumer confidence is recovering after the blows of the pandemic period
  • Stabilization of geopolitical risks in case Russia and the West enter “negotiation mode”

Key risks in 2022 will include:

  • Escalating tensions between Russia and Ukraine
  • Energy crisis and fuel shortages exacerbate geopolitical tensions
  • New waves of the pandemic
  • Emerging market pressures due to rising debt burden
  • High inflation proving more resilient and triggering more aggressive Fed tightening

The “black swans” of 2022 could come from the geopolitical realm, but also emerge on the back of systemic vulnerabilities in the global economy such as climate change, energy supply disruptions and the green transition. One of the factors that could increase systemic risks is the labor shortage factor, which the global economy and Russia in particular are facing in areas such as cybersecurity, IT and healthcare. health.

In this regard, one of the trends that has been pronounced in 2021 and which is not expected to disappear in 2022 is the shortage of labor in some of the key sectors of the Russian economy, especially in the IT sector. Other sectors where the supply of labor was lacking were construction, agriculture, transport and other services affected by the reduction in the influx of migrants from the “near abroad” of Russia during the pandemic. The labor shortage, if it persists through 2022, should begin to produce more palpable inflationary effects and a negative impact on economic growth.

As for the plans of Russian households for 2022, it should be noted that 22% of respondents to the “Zarplata.ru” service said that they are planning computer training next year, 8% having already completed one. additional computer training sooner and 46% ready. consider such training in the near future. The IT sector is seen by Russians as one of the most attractive employers, with 33% citing high salary levels and 24% noting the high demand for labor in this sector. Overall, according to Hays, 56% of Russians plan to change jobs within a year, while 66% of Russian employers cite lack of manpower/specialists as one of the main difficulties in the management of human resources. Headhunter, Rabota.ru and other Russian headhunters should continue to benefit from this environment.