Russian economy saw a positive beginning of the year, ruble exchange rate remaining stable, with high oil prices and demand for risky assets supporting the Russian market. Internal demand in the economy increased on the back of positive real salaries dynamics and active budgetary spending. However, COVID-19 spread and first countermeasures enacted starting with China, followed by the European zone, bolstered global economic slowdown sentiment ─ the external demand began dwindling, particularly in terms of energy carriers after a partial, and soon after complete shutdown of the air traffic in the number of countries. Moreover, the OPEC+ deal deterioration in March and increased production plans aggravated the oil market position. On that backdrop Brent oil price plummeted to USD 22.7/bbl, local sorts lost even more, Russian brand Urals repriced to USD 15.1/bbl.

Introduction of non-working days in Russia in March to slow down the virus spread had no material impact on the 1Q results. However, the prolongation of limiting countermeasures until mid-May dramatically influenced the economic growth and production activity and largely hit the services sector. The industrial production index in January−November shrank by 3% compared with the last year, after a 2.9% growth in 1Q. In the pre-pandemic environment among the developing industries were oil refining, chemical, and food industries. During the pandemic, the process manufacturing sector received a major hit under the influence of diminishing demand, while oil production was impacted by the following OPEC deal. In the second half of the year production slowly recovered, the 4Q industrial production index was down by 2.5% y-o-y after a decrease of 6.7% in 2Q; the annual decrease in FY 2020 amounted to 2.9%. With that said, the process manufacturing sector retained moderate growth, with the chemical complex (+8.8% y-o-y) and the food industry (+3.1% y-o-y) being among the leaders in terms of growth. GDP as a whole reduced by 3.5%. With that, retail trade turnover shrank by 4.5% y-o-y, with the consumer demand recovery being held back by weak disposable income dynamics: -4.3% during 9M 2020.

Inflation in Russia continued its downward trend at the beginning of the year, reaching its local minimum of 2.3% y-o-y in February. However, rising uncertainty, weakening ruble, and growing demand for the essentials and export prices growth for certain products led to the price growth acceleration. Inflationary flashes in April and November hiked the y-o-y inflation up to 4.9%. The Central Bank of Russia (CBR) in 2020 pressed on with its monetary easing policy cycle, bringing the key rate down to 4.25%. One of the main drivers for easing is the prevalence of disinflationary pressure due to the drop in demand. Among other factors are other Central Banks’ actions: e.g. the Federal Reserve System (FRS) plummeted its key rate from 1.5−1.75% to 0−0.25% in March and employed a new quantitative easing policy, and the European Central Bank (ECB) expanded its asset purchase program. The largest regulatory bodies’ actions supported the financial markets throughout the year, whilst most of the Central Banks lowered their key rates. However, after the drop to 4.25% in July the CBR put everything on hold, basing off of growing uncertainty and volatility of the external markets, coupled with ruble depreciation. Inflation continued its acceleration and short-term inflationary risks grew their influence with long-term disinflationary ones remaining intact.

Financial markets remained under pressure throughout most of the year of the corona-related news background and growing risks for the global economy. With that said, the Russian market remained relatively stable until the oil prices collapse in March. Ruble has naturally reacted with steep weakening, with the RUB/USD exchange rate reaching 80.9 in March; in June it partially restored to RUB 69. 3Q saw a moderately negative sentiment, so did the beginning of 4Q. Firstly, investors exercised caution due to uncertainty related to the outcome and aftermath of the US elections. Moreover, the sickness rate increase in the US/EU and limiting countermeasures followed strengthened negative attitude towards the long-awaited recovery of the global economy, with the USA budgetary stimulus package hitting one slump after the other. However, in the end, Joseph Biden’s victory was taken positively by the markets, and epidemiological data influence was partially canceled out by the notifications about impending mass vaccination. So by the end of the year, the markets reached quite a positive outlook. On that backdrop and rising interest to the risky assets the Russian ruble recovered after its utmost weak point of RUB/USD 80.5 among other emerging markets currencies to the RUB/USD 74.4 level at the end of the year.

The Central Bank already commenced preemptive foreign currency sales in March following the budgetary rule (formally, they should have proceeded with it only in April); after Urals dropping to USD 25/bbl the CBR increased the volume of the operation with the funds received from the Ministry of Finance of the Russian Federation from Sberbank acquisition. The operations of the CBR and the Ministry of Finance helped to stabilize forex market position and continue supporting ruble exchange rate, until oil prices growth compensates for dropping federal budget Oil&Gas gains, with the budgetary rule having been corrected for not only oil prices drop compensation but also a drop in production volumes due to the OPEC deal. In 4Q 2020, the CBR completed its own forex operations, since 2021 forex sales will be only performed in accordance with the budgetary rule benefitting the Ministry of Finance. With that said, the CBR’s own operation on forex sales led to a decrease in ruble liquidity in the banking system, which resulted as one of the causes of structural liquidity surplus. Liquidity was also significantly affected by increased money demand. Some time prior to the additional non-working days in March, some individuals and legal entities showed high money demand. This trend held true throughout the whole year. The third ruble liquidity-affecting factor became the operations of the Ministry of Finance on federal bonds placement ahead of budgetary spending. As a result, the structural liquidity surplus of RUB 2.6 tn turned into RUB 0.19 tn deficit by the end of the year.

MOEX index after the March drop and weak 3Q bounced back in November−December and refreshed January maximum by the end of the month, by the year-end growing by 8%. The bond market followed the key rate, however dwindling non-residential demand by the end of the monetary easing cycle in Russia held back the prices in the end of the year. Nevertheless, federal bonds yields dropped by 30−90 bp y-o-y depending on the maturity.


Banking system assets grew by RUB 15.9 tn (+16.5% YTD) up to RUB 112.5 tn (3.7 tn due to forex revaluation). Ruble assets increased by RUB 11.3 tn (+14.5% YTD), a net increase in forex assets amounted to 4.6%. Gross loan portfolio as at January 1, 2021 amounted to RUB 77.7 tn (+14% YTD).

At the end of 1Q, the lending growth driver was a hike in demand from non-financial organizations when companies had to compensate the lack of income. This trend held up until the middle of 2Q. On the other hand, retail lending fell behind at the beginning of 2Q due to lower demand from the populace and stricter requirements set by the banks. After that retail demand was restored on the back of lower rates, including those on mortgages, and of the federal mortgage subsidy program initiation. The stabilization of 3Q lowered the legal entities’ demand for funds, corporate lending slowed down a bit. With that, the subsidy program was firstly expanded to RUB 900 bn, and to RUB 1 850 bn after that, coupled with lower first payment threshold fueled the demand for these loans, with retail lending growing on the back of unsecured lending recovery. Nevertheless, mortgages remained the main growth driver. By the end of the year lending mostly grew due to large corporate lending from the various sectors, one of which being construction projects financing ─ also connected with the subsidy program and lowered rates.


In 2020, the St. Petersburg economy was no exception to the pressure from the lower demand and limiting measures due to the coronavirus pandemic. The industrial production index went down by 1.8%, with the construction volumes decreasing by 9.3%. With that, the process manufacturing sector (taking up 84.6% of the city’s production), lost only 0.8%, supported by the chemical sector (+18% y-o-y), food (+4.6%), and paper production (8.7%). Fossil fuels extraction lost 15.5% by the end of the year. The most affected industry in St. Petersburg (as well in other regions) became the food service industry (30.5% y-o-y turnover drop), with the retail sector contracting by 2% to 1.5. Inflation came in slightly lower than the state average at 4.7%.