19 March 2020
Renaissance Capital holds online press briefing on COVID-19’s implications for Russia

Discusses economic scenarios and further possible moves from the Central Bank of Russia

Moscow, 19 March 2020 – Renaissance Capital, a leading investment bank in emerging and frontier markets, on 18 March 2020 held an online press briefing ‘COVID-19 implications for the Russian economy – post-quarantine thoughts from an analyst’ for top Russian and international media, hosted by Renaissance Capital’s analysts – Sofya Donets, Economist for Russia & CIS, Alexander Vengranovich, Telecoms Research and Kirill Panarin, Consumer & Technology Research.

Sofya Donets opened the briefing by asserting that Russia is positioned to weather the current shocks better than many other countries. While being sensitive to global commodity prices, the Russian economy might benefit from a very moderate share of services in the consumer basket, as well as in GDP and banking loans – less than 10%, 2% and 1%, respectively, which implies limited economic losses and employment effects.

Sofya maintains that Russia’s public finances are in good shape to absorb recession-related risks, with the size of the National Wellbeing Fund sufficient to support budget spending for at least five years, even with oil prices at $20/bbl.

“With all checks and balances in place, we do not expect Russia’s credit quality to deteriorate,” Sofya said.

She believes that now is a good time for the Central Bank of Russia to take a pause and leave the key interest rate unchanged at 6.0% at the 20 March meeting on Friday, after which the regulator is likely to proceed with moderate tightening.

“However, we could also see scenarios with either more hikes, in the case of lower oil prices and a weaker rouble, or in contrast, more monetary easing in the case of a significant domestic COVID-19 outbreak,” Sofya noted. 

Alexander Vengranovich, Telecoms Research, discussed the possible implications of COVID-19 for the telecommunication sector. He noted that positive effects from the rising consumption of data and voice services against the backdrop of quarantine requirements should have a positive impact on fixed line and mobile services revenue, offsetting the substantial decline in international roaming. On the negative side, a rouble devaluation could result in a potential increase in telecom companies’ capex or a revision of capex plans, given that at least 50% of respective budgets are denominated in a foreign currency.

Kirill Panarin, Consumer & Technology Research, talked about the COVID-19 effect on the advertising market, noting that digital has a very good chance to win additional market share from TV advertising, as the latter is more vulnerable to macro downturns and subsequent ad budget cuts.

Kirill explained that in the short term many online services such as taxis, car-sharing, food delivery, food retailers and e-commerce should initially benefit from the quarantine measures. In the case of a further deterioration or even complete lockdown, he expects there will be mixed implications. That said, longer term Kirill believes the virus outbreak is likely to accelerate the shift to online and user adoption of various online services.

“Non-food retailers are likely to be affected by demand contraction rather than logistic and supply disruptions, although the latter remains a risk depending on how the situation with the virus evolves” he noted. “Food retailers are likely to be more resilient given more stable demand and a marginal share of supplies from China. As for the current panic-induced spike in consumption, this should support revenues in the short term only as people will take time to consume their stocks. Naturally, omni-channel players and e-tailers will have an edge on their offline competitors.”