Goldman Sachs believe Russian Economy is Growing Significantly Above Potential

Goldman Sachs comment on the Russian economy following Wednesday’s GDP print (+4.9% y/y):

• Goldman Sachs think it is the external balance that acts as the most binding constraint on Russian growth going forward, given that Russia is unlikely to be able to fund itself externally.
• In their view, loose fiscal policy has been the main driver of the continued economic expansion, although numbers point to somewhat lower government spending, but higher investment, compared to their expectations.
• While the recent increase in oil price will likely lower fiscal deficits going forward, inflation expectations in September came in at +11.7%, and Goldman Sachs continue to believe that the economy is running significantly above potential.
• They say they have yet to see indications of growth inflecting, but that the CBR will likely hope that their hiking cycle starts to have an effect over the coming months.