A more than USD23-billion reduction in Russia's merchandise trade surplus put a major dent in the country's current-account receipts in the first quarter of 2016, according to a newly released revision of the very preliminary first estimate.
IHS perspective | |
Significance | The more than 40% cut in earnings from energy exports in the first quarter dramatically reduced the current-account surplus. |
Implications | The impact on the exchange rate may be countered by the slowdown in net capital outflow as long as there is no new spike in flight to safe havens by investors. |
Outlook | Given the decline in world-market oil prices over the course of 2015 and a recent moderate upward reversal, the current account will not be affected as dramatically in succeeding quarters of 2016, barring a recovery of merchandise imports. |
The Central Bank of Russia (CBR) has revised its earlier estimate of the developments in the balance of payments in the first quarter of 2016. The earlier estimate was published only days after the end of that quarter. While the current-account surplus was estimated at USD11.7 billion just after the end of the quarter, the revision puts it at USD12.6 billion. In either case, it is clear that a sharp decline in receipts from exports of goods, fuels and energy in particular, has severely dented the country's current-account surplus despite offsetting developments in some other components of the current account.
According to the latest data, total exports in the first quarter of 2016 were down 33.0% year on year (y/y). At the same time, goods imports declined by only 14.8% and from a much smaller base. Thus the merchandise trade surplus fell to USD22.4 billion from USD45.5 billion in the same quarter a year earlier for a decline of USD23.1 billion or by 50.9%. Exports of fuels and energy fell by 40.4% y/y, while non-energy exports declined by 21.9%. Among individual energy commodities, the sharpest decline took place for refined petroleum products with export receipts down 51.8% y/y. The decline in exports of crude oil amounted to 38.0% while exports of natural gas were down 25.1% y/y in the first quarter of 2016.
Russian balance of payments (mil. USD) | |||||
Q1 2015 | Q2 2015 | Q3 2015 | Q4 2015 | Q1 2016 | |
Balance on current account | 30,004 | 16,542 | 7,828 | 14,626 | 12,556 |
Merchandise trade balance | 45,525 | 43,749 | 28,943 | 30,296 | 22,363 |
- Goods exports | 90,177 | 91,424 | 78,761 | 81,104 | 60,423 |
- Crude oil | 22,729 | 25,402 | 21,469 | 19,988 | 14,093 |
- Oil products | 20,025 | 19,094 | 14,913 | 13,421 | 9,658 |
- Natural gas | 11,366 | 10,449 | 9,447 | 10,582 | 8,515 |
- Other goods | 36,056 | 36,479 | 32,932 | 37,114 | 28,157 |
- Goods imports | 44,653 | 47,676 | 49,818 | 50,808 | 38,061 |
Non-factor services, Net | -8,323 | -9,516 | -12,147 | -6,888 | -4,801 |
Primary income, net | -6,186 | -16,497 | -7,066 | -7,266 | -3,846 |
Secondary income, net | -1,012 | -1,194 | -1,902 | -1,517 | -1,160 |
Financial account balance* | 37,528 | 19,400 | 2,600 | 11,325 | 6,451 |
Direct investment, net | 799 | 5,752 | 8,381 | 777 | 7,618 |
Portfolio investment, net | 14,397 | -1,327 | 4,155 | 9,199 | 712 |
Financial products, net | 2,234 | -135 | 4,333 | 1,001 | 867 |
Other investment, net | 20,098 | 15,110 | -14,269 | 348 | -2,746 |
Change in reserve assets | -2,589 | 850 | 4,510 | 1,095 | -3,487 |
Net errors and omissions | -10,113 | -2,166 | 9,728 | 4,254 | 2,597 |
* In this "neutral presentation" the financial account balance includes the change in reserve assets. | |||||
At the same time, opposing but much smaller changes took place in the net positions on non-factor services and primary income. The deficit on non-factor services fell by USD3.5 billion y/y thanks primarily to a reduction in outlays. The net position on primary income items, that is, compensation of individuals, payment of dividends and interest to foreign investors and outlays for rent to foreigners, improved by USD2.3 billion to USD3.8 billion in the first quarter of 2016 compared with a year earlier. The balance on secondary income, i.e., official and private transfers, changed only marginally y/y. Thus, the change in the current-account position was a cut in the surplus of USD17.4 billion as the net improvement of USD6.1 billion in the two deficit positions offset the USD23.2-billion deterioration in the merchandise trade account.
There was also a massive y/y shift in the financial account in the first quarter of 2016, from a surplus of USD37.5 billion to a surplus of only USD6.4 billion. This is interpreted as the change in financial assets less the change in financial liabilities. In this case, dubbed the analytical presentation by the Central Bank of Russia, the change in reserve assets is not included in the financial account balance. Within the financial account, the most significant y/y changes came in the "other investment" and portfolio investment categories. In each case, increases in liabilities outweighed increases in assets significantly in sharp contrast to a year earlier. On the other hand, net direct investment was definitively outward directed in the first quarter of 2016, to the tune of USD7.6 billion compared with only less than USD800 million in the first quarter of 2015. Reserve assets fell by USD3.5 billion on a net basis in the first quarter of 2016, only moderately more than the USD2.6 billion decline a year earlier.
Outlook and implications
Given the decline in world-market oil prices over the course of 2015 and a recent moderate upward reversal, the current account will not be impacted as dramatically in succeeding quarters of 2016, barring a recovery of merchandise imports. Nevertheless, the impact of the reduced current-account surplus on the change in reserve assets and exchange rate of the rouble against the basket of euro and dollars going forward could well be substantially offset by a continued reduction in the net outflow of capital from the Russian private sector. The outflow in the first quarter of 2016 is estimated at only USD7.0 billion in the first quarter of 2016 compared with USD32.9 billion in the same quarter of 2015. The total net outflow in 2015 as a whole is estimated by the Central Bank of Russia at USD58.1 billion, already much reduced from the USD152.9 billion net outflow in 2014 that ushered in the dramatic plunge of the rouble against major currencies. Should global risks and financial market volatility renew a massive flight to safer havens once again, however, capital flight from the Russian private sector could receive renewed impetus.