Russia: a brief market watch

RUSSIA ECONOMICS - In Brief 10 Apr 2025 by Evgeny Gavrilenkov

---

The Russian financial markets have been under pressure recently, as the "tariff war" story affected markets worldwide. Fears of slower economic growth and an acceleration of inflation globally were extrapolated to the Russian story. Even though Russian financial markets remain ring-fenced from the global ones, Russia continues to trade with many countries. The main concern of the local investors is related to the ability of its economy to grow amid reduced oil prices. Many investors cannot rule out that the "tariff war" could trigger the so-called "Risk scenario" considered by the CBR and published at the end of 2024. This scenario assumes a recession in the EU and the US, combined with a decline in oil prices to $55 per bbl in 2025. The CBR believes it may cause the Russian GDP to contract by 3-4% this year (we think it is too conservative an assumption, as the Russian economy never contracted by more than 3% after 2009). At the same time, commodity market volatility could cause problems for the budget, such as a wider deficit and the need to borrow more. The latter would negatively affect the OFZ market. The recent correction in the stock market was quite understandable, as it grew on the back of positive expectations regarding geopolitical agenda and potential softening of the monetary policy. 'Tariff war' concerns overshadowed both factors. The FX market delivered some surprises for the market participants. Despite all the external vulnerability, the ruble stayed strong and, in the recent couple of weeks, fluctuated in the range from R/$84 to R/$86. Even a sharp drop in oil prices had a minor effect on the FX market. The exchange rate remains largely a function of ...