Russia has stronger growth than expected driven by a domestic economic recovery.

The Russian ruble has rapidly strengthened due to the announcement of better than expected GDP figures. However, it still remains weak compared to its lowest levels in the past 17 months. Despite a recent interest rate hike of 350 basis points aimed at supporting the ruble, the currency has depreciated by over 30%. This depreciation is significant, and data indicates that both companies and households are fleeing to more stable foreign assets.

Russia's GDP has experienced a rapid increase, rising by a significant 4.9% year-on-year in the second quarter, following a contraction of 1.8% in the previous quarter. This marks the first GDP growth since 2022. The sectors with the most significant growth include hotels and restaurants, which is seen as a positive signal for the Central Bank of Russia (CBR). It indicates a domestic recovery and improved international trade following the impact of the currency crisis, allowing the CBR to consider raising interest rates again to combat rising inflation.

Russia's inflation rate increased to 5.2% year-on-year, up from 4.3% in July, reaching its highest level in six months and surpassing market expectations of a 5.1% increase. Nevertheless, the CBR has signaled its intent to raise interest rates further this year, with the goal of bringing inflation back down to 4% by the end of 2025. It is projected that the inflation rate will remain between 4.5% and 6.5% for the remainder of the year. It has been noted that food prices have increased significantly in recent months due to cost pass-through to consumers.

The Russian government has discovered a budget deficit of up to 2.361 trillion rubles over the past eight months, making it the largest budget deficit in history. This deficit has occurred as revenues have decreased by 3.5%, leaving them at 16.99 trillion rubles. Despite Russia's reliance on energy exports, the downturn in global energy sales, coupled with the economic slowdown in China, has contributed to this decline in revenue.

To maintain financial stability, Russia has implemented an increase in value-added tax (VAT) for both importers and exporters, resulting in a 24.2% increase in tax revenue. However, government expenditures have also risen by 11.8%, reaching 19.351 trillion rubles. This increase is due to the necessity of continuously supporting various resources for the ongoing conflict in Ukraine.

Techical analysis data (5H)

Resistance: 95.2453, 96.5408, 97.8854

Support: 92.6052, 91.2606, 89.9651

Source: Investing.com