Gold on a blue eye – Newspaper Kommersant No. 144 (7345) dated 08/10/2022

The Bank of Russia’s assessment of the balance of payments of the Russian Federation for July 2022, contrary to expectations, is stronger than the June figures: the foreign trade surplus of the Russian Federation for this month amounted to $33.9 billion. Analysts are already distrustful of them – a huge surplus should have been caused either by an increase in oil shipments , whose prices were stable or falling, or a fresh decline in imports in July after the June stabilization, which was not explicitly reported, or invisible corrections in the figures of previous months. If there are no radical changes in the structure of the trade balance, the full data on which are closed, then the July records of foreign currency receipts in the Russian Federation do not have a great chance of repeating.

Preliminary data from the Bank of Russia on the balance of payments for January-July 2022 puzzled analysts. The surplus of its current account (the balance of external trade and financial transactions of Russia) reached $166.6 billion in seven months, and trade in goods and services – $192.4 billion, which is 3.3 and 2.5 times more than in 2021, respectively. In July, based on the same estimates, the current account surplus amounted to $28.1 billion, and foreign trade – $33.9 billion, continuing to set new records, and already unexpected ones.

“The dynamics of the current account of the balance of payments was determined by the expansion of the positive balance of the total balance of goods and services as a result of a significant increase in the value of exports of goods and a decrease in the cost of goods imports,” the Central Bank explains. This is the general explanation that has been and remains valid for the strong state of the balance of payments and trade. Strong, but not increasing – seasonality in physical imports and exports is not as pronounced as in industrial production and in the dynamics of services, therefore, a significant strengthening of the balance of payments could occur only against the backdrop of a sharp change in trends in May-June 2022, for which there are no special grounds.

Analysts of the Solid Numbers Telegram channel (recall that after the sanctions caused by the Russian military operation in Ukraine, activity in economic comments is gradually moving from the offices of investment banks to this network) notice that among major trading partners for July, only data on trade with China – imports to Russia grew by 22% in annual terms. “The dynamics of imports from other countries, apparently, turned out to be less positive, while exports remain at high levels – most of the embargoes have not yet entered into force, and the redirection of exports towards “friendly” trading partners has already begun,” they explain the new records. This group of analysts expects that by the end of the current year, the current account surplus could reach $250 billion (the August consensus of FocusEconomics is $198.3 billion, against the backdrop of improved export estimates and unchanged import estimates for the month), that is, it is possible that additional earnings of the Russian Federation on the more expensive energy resources will be comparable in order of magnitude to the volume of international reserves frozen by the sanctions of the Russian Federation.

In turn, analysts of the MMI Telegram channel consider the data provided by the Central Bank to be “incredible”. “Given that gas exports to Europe have practically ceased; oil exports are at least not growing; exports of other goods are declining (metallurgists, sawmills, gold); prices on world commodity markets are corrected down; imports show slight signs of recovery (primarily in terms of consumer goods), it is completely unclear where such a high surplus could come from, ”they say, suggesting that the Bank of Russia simply revised the data for the half year (the format for future publications of information on the revision after the restriction of publications data on the balance of payments is unknown), which could greatly affect the record July figures. “Otherwise, it is difficult to explain these figures. And the dollar with such a surplus should be below 50, not above 60,” they say.

Against this background, data on revenues from the Federal Customs Service to the budget in July record a decrease of 34.3% in annual terms against a decrease of 31.7% in June 2022. In practice, this may be indirect evidence that the trend of recovery in imports (at least in terms of consumer goods), which was discussed in July both in the Central Bank and in the Bank of Russia, turned out to be unstable – and the record surplus on balance sheets is determined to a greater extent not growth in revenues from oil and gas exports, and a further decline in imports. At the same time, both versions may be correct – despite the stabilization of Brent prices below $100 per barrel in July, the nature of settlements under Russian contracts with oil consumers should have changed – and with a certain probability, especially given the complete liberalization of the practice of return foreign exchange earnings, in July surplus figures one can detect funds received from Russian oil supplies to India and China in May-June 2022. Finally, there are few reliable reports on discount prices for Urals in the summer of 2022, and the calculations of the Ministry of Finance on the export price of Urals, which usually assume a discount of 30-35% of the current market price of Brent, may differ significantly from reality.

The reasons for a possible further decline in imports may be both ongoing problems with logistics and payment for transactions, as well as some contraction in demand. So, this week, the Ambassador of Bangladesh in Moscow, Kamrul Ahsan, said that the export of textiles to the Russian Federation had stopped due to the complexity of logistics (the main item of trade between the two countries). The attenuation of the surge in private demand was detected by the end of July 2022 (see Kommersant of August 4), while the Ministry of Economy announced that in September the massive zeroing of import duties would end, after which only pinpoint decisions would be made, and this could further exacerbate the recession import. However, it is now very difficult to predict the dynamics of imports based on domestic demand in the Russian Federation – monthly fluctuations, apparently, are very large.

In any case, if what is happening is the overlap of the peak of payments for “alternative oil from the Russian Federation” and the decline in imports, then the July abundance of oil will only make the reduction in the balance sheet surplus in September-October more pronounced. This could also be a trigger for the ruble’s center of fluctuation to drop below 60 rubles/$: perhaps the time when Russia’s trade balance was the best in its history is over.

Dmitry Butrin, Alexey Shapovalov