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Russian Economy Rebounding From Covid Slump After Lockdown – Financial Post

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(Bloomberg) — Russia’s economy continued to rebound from its pandemic-induced recession in the fourth quarter of 2020, easing its contraction as President Vladimir Putin opted against imposing a second national lockdown.

Gross domestic product declined 1.8% from a year ago, the Federal Statistics Service said Thursday. That was less than the median forecast of economists for a drop of 2.2%. The full-year contraction was revised to 3% from 3.1%, the service said, also updating previous quarters.

The economy of the world’s largest energy exporter contracted less than many of its peers last year as Russia imposed lighter Covid-19 restrictions following an initial lockdown. Its service sector is also relatively small as a share of output.

Inflation, sparked by rising global food prices and the ruble’s weakness, accelerated further amid a recovery in consumption, prompting the Bank of Russia to raise interest rates for the first time since 2018 last month, with further hikes likely.

The government will lower its 2021 economic growth forecast from 3.3% after the statistics service’s report of a smaller contraction last year, Economy Minister Maxim Reshetnikov said Thursday, according to Interfax. Performance in the first quarter should be on par with the last three months of 2020, he said.

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What Our Economists Say:

“After a surprisingly small contraction in 2020, the recovery is broadening, fueled by slowing outbreaks, progress in vaccinations and higher oil prices. The virus remains a threat. Normalcy is a long way off, but output could return to the pre-virus peak by the fourth quarter.”

–Scott Johnson, Bloomberg Economics. Read RUSSIA INSIGHT

Russia’s government is winding down pandemic support measures while also planning to boost infrastructure spending this year, including by tapping its $182 billion wealth fund. Finance Minister Anton Siluanov said money from the fund could start flowing in the first half of this year, totaling 1 trillion rubles ($13 billion) over 3 years, or about 1% of Russia’s total output.

At current oil prices, the economy may expand about 2.5% this year, according to Alexandra Suslina, a budget specialist at the Economic Expert Group, a Moscow think tank.

“The economy is slowly recovering,” Suslina said. “Spending from the wealth fund will lift the economic indicators, but won’t bring Russia to a new level of growth. It will be a short-lived impact.”

The ruble’s weakness and the surge in inflation are putting further pressure on Russians’ deteriorating living standards. Real disposable incomes are still about 10% below levels reached before Putin’s 2014 annexation of Crimea that triggered international sanctions.

The government has resorted to price controls on certain food staples to try to rein in inflation, which rose in February at the fastest pace since 2016. Consumer-price growth reached 5.8% as of March 15, the central bank estimated.

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While countries across Europe are experiencing a third wave of Covid-19 infections, pushing some governments toward new lockdowns, Russia continues to ease restrictions as recorded cases decline. Still, an official campaign to encourage mass vaccination has produced little public response so far.

Despite Putin ordering the start of the program in December, only about 4.3% of people in Russia have had a first dose of vaccine, compared to 11% in Turkey, nearly 30% in the U.S. and almost 50% in the U.K.

“While the percentage of the vaccinated population remains low, Russia will remain at risk of a damaging third wave that could hurt recovery prospects,” said Tatiana Orlova, an analyst at Emerginomics in London. “The population’s vaccine hesitancy is, in my opinion, a substantial risk to the near-term economic outlook.”

©2021 Bloomberg L.P.

Bloomberg.com

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Canadian dollar notches biggest gain in a month as stocks rally

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The Canadian dollar strengthened to a one-week high against its U.S. counterpart on Thursday as investor sentiment picked up and domestic data showed that retail sales fell less than expected in July.

World stock markets rallied and the safe-haven U.S. dollar retreated from one-month highs as worries about contagion from property developer China Evergrande eased and investors digested the Federal Reserve’s plans for reining in the stimulus.

Canada is a major exporter of commodities, including oil, so the loonie tends to be particularly sensitive to investor appetite for risk.

“The assumption here is that (Fed interest) rate hikes are still a long way out and so equities markets can still perform with accommodative financial conditions,” said Mazen Issa, senior FX strategist at TD Securities in New York.

“Consequently, currencies that have a higher beta to the equity market, like the CAD, can do alright.”

U.S. crude oil futures settled 1.5% higher at $73.30 a barrel, while the Canadian dollar was trading up 0.9% at 1.2653 to the greenback, or 79.03 U.S. cents.

It was the currency’s biggest advance since Aug. 23. It touched its strongest level since last Thursday at 1.2628.

Canadian retail sales dipped 0.6% in July, compared with expectations for a decline of 1.2%, while a preliminary estimate showed sales rebounding 2.1% in August.

Canadian government bond yields were higher across a steeper curve, tracking the move in U.S. Treasuries.

The 10-year touched its highest level since July 14 at 1.335% before dipping to 1.330%, up 11.6 basis points on the day.

(Reporting by Fergal Smith; Editing by Nick Zieminski and Peter Cooney)

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China Vows Better Policy Support to Economy as Headwinds Mount – BNN

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(Bloomberg) — Chinese policy makers reiterated the need to fine-tune economic policies as the world’s second-largest economy faces increasing headwinds from virus outbreaks and high commodity prices. 

Policy should be preemptive and coordinated across cycles, the State Council, the equivalent of China’s cabinet, said in a statement after a meeting chaired by Premier Li Keqiang Wednesday. Governments at all levels should maintain the continuity and stability of macroeconomic policies and enhance their effectiveness, while also do a good job in preventing and controlling virus cases, it said.

Efforts are needed to better coordinate fiscal, financial and employment policies in order to “stabilize reasonable expectations by the market,” it said. 

China again vowed to make sure the economy is operating within a reasonable range, with further measures to boost consumption, guiding private capital to play a better role in expanding investment, and ensuring stable growth in foreign trade and foreign capital, according to the statement. While the employment situation is stable this year, efforts are still needed to maintain employment and help companies, it said. 

The economy took a knock in August from stringent virus controls and tight curbs on property. While China’s Covid zero approach helped to quickly quash the infections, retail sales growth suffered, slowing to 2.5% in August. 

Facing the continued commodity boom, the State Council also pledged to use more market-based measures to stabilize commodity prices and ensure supplies of power and natural gas during the winter. 

©2021 Bloomberg L.P.

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UAE Says It's Unwinding Pandemic Stimulus as Economy Recovers – Bloomberg

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The United Arab Emirates has begun winding down an economic support program launched in response to the coronavirus pandemic as the economy shows signs of gradual recovery, the central bank said in a statement.

The reduced reserve requirements for banks won’t change for now and neither will the lower loan-to-value ratio required for first-time home buyers seeking mortgage loans, the bank said. The loan deferral component of the Targeted Economic Support Scheme will expire by the end of 2021 with financial institutions able to carry on tapping a collateralized 50-billion-dirham ($13.6 billion) liquidity facility until the middle of 2022, in line with earlier guidance.

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