Trade wars between the USA and China, which raised concerns of accelerating reduction in global growth, continued to influence the world economy in 2019. On May 10, the USA made a decision to increase tariffs on USD 200 bn worth of Chinese-origin products from 10% to 25%. China announced retaliatory tariffs. The year saw a predictable reduction in turnover between these two countries. At the same time, additional revenue of the USA from tariffs was lower than expected due to the redirection of Chinese exports via other countries of Southeast Asia.

The majority of central banks responded to growing risks of economic growth slowdown by suspending measures to tighten monetary policy and then easing it. After four rate hikes in 2018, the US Federal Reserve cut interest rates three times in the second half of 2019. At the same time based on the results of the December meeting on monetary policy, the American regulator stated that reduction of the rate is possible only in case of significant economic deterioration while according to the forecast of Federal Open Market Committee members interest rates are likely to remain unchanged in 2020. The European Central Bank responded to the low inflation pressure and economic weakness by reducing the deposit rate to -0.5% p.a. at the September meeting and renewed the program of purchasing EUR 20 bn worth of assets each month in November. Christine Lagarde, who replaced Mario Draghi as the head of the European regulator, announced a review of the ECB’s strategy in 2020.

Easing of monetary conditions was also influenced by the FED gradually phasing out its balance-sheet reduction process followed by an increase. Starting from October 15 the FED began monthly purchases of USD 60 bn in short term bonds and repo operations in order to support dollar liquidity, which buoyed demand for risk assets in the second half of the year. As the developed countries’ central banks started to mitigate monetary conditions, emerging market economies followed suit. Rate cuts were undertaken in India, Brazil, Indonesia, Australia, South Korea and Chile. The National Bank of China lowered rates and weakened yuan in an effort to ease the impact of a trade conflict.

Economic activity was slowing down amid geopolitical tensions. Euro Area GDP growth shrank from 1.4% in Q1 2019 to 1.0% in Q4 2019 primarily because of Germany finding itself on the brink of a technical recession. China also experienced a gradual decline in GDP growth — 6.1% in 2019, down from 6.6% in 2018.

Oil prices started the year on a high note with Brent approaching USD/BBL 75 in April. The growth was influenced by OPEC+ efforts to cut production and extend the reduction deal until March 2020, but in the second half of 2019 oil prices were under pressure amid fears of a slowdown in energy demand. By the end of the year, oil prices recovered in light of OPEC+ plans to further reduce production in early 2020, coupled with local oil production halts in Saudi Arabia.


Russia started the year 2019 with an economic slowdown followed by a gradual recovery in Q2­–Q4. According to preliminary estimates, annualized GDP growth amounted to 1.5% compared to 2.5% in 2018. Economic decline in the country is also influenced by VAT rise from 18% to 20% starting with January 1, 2019, as well as execution fallback of federal budget expenditure. The beginning of the year was marked by low investment activity and weak consumer demand resulting from an adverse trend in real disposable income of the population. The situation was also aggravated by the reduction of export in Q2 due to Druzhba pipeline incident and by the decline in demand for iron and steel products, while external demand for Russian non-ferrous metals expanded. At the same time processing industry and agriculture demonstrated promising dynamics, including the pharmaceutical sector (+19.6% in 2019) and food and chemical industries (+4.9% and +3.4% respectively).

Inflation accelerated in Q1 peaking in March at 5.3%, but after that was sliding to 3.0% by the end of 2019. Strengthening Russian currency against US dollar, fading effect of the VAT hike, stabilization of oil prices and decline of prices on fruits and vegetables due to ample harvest contributed to consumer prices deceleration. The disinflationary impact was also associated with lagging execution of budget expenditures. At the same time inflation of non-food goods saw a more significant slowdown with inflationary expectations remaining high.

In the midst of faster than expected inflation hitting its 4.0% target, decreasing pro-inflationary risks and strengthening rouble, the Bank of Russia, taking weak economic growth into account, started easing its monetary policy in June. The key rate was cut five times reaching 6.25% at year-end. Meanwhile, growing market expectations of further monetary policy easing drove down yields of rouble bonds and other interest-bearing instruments.

In Q1 2019, a number of draft bills on anti-Russian sanctions were introduced to the US Congress but were tabled. Investors were loading up on Russian debt despite a looming threat of new sanctions. The share of non-residents in Federal Loan Bonds expanded from 24.4% in early 2019 to 32.2% at year-end. The Ministry of Finance placed Federal Loan Bonds worth RUB 514 bn in Q1 2019 and RUB 888 bn in Q2 2019. As actual volume of placement outperformed the plan, the ministry resumed Federal Loan Bonds limits, following by placing securities worth RUB 261 bn in Q3 2019.

A new fiscal rule, according to which the Bank of Russia, acting on behalf of the Ministry of Finance, ordered purchasing foreign currency in the amount of oil and gas budget revenues exceeding the base price of URALS oil at USD/BBL 41.6, was operational throughout this period. The Central Bank forewent financial market transactions from August to December 2018, transferring currency from its own reserves to the Finance Ministry. In order to compensate for the volume of FX purchases built up from August to December, the Bank of Russia increased daily forex purchases under the fiscal rule by RUB 2.8 bn daily starting with February 2019. However, due to seasonally strong payment balance current account and high demand for Russian assets, it did not cause notable pressure on the rouble.

Internal financial markets recovered after an episode of the significant increase in volatility in December 2018. USD exchange rate hovered around RUB/USD 61.8-69.7, average rate amounted to 64.7 RUB/USD, average URALS price amounted toUSD/BBL 64.3. MOEX Russia Index increased by 28.6%, while RTS Index gained 44.9%.


In 2019, the Russian banking sector continued its growth, but the rate decreased significantly.

Banking sector assets saw a 2.7% increase, reaching RUB 96.6 tn compared to RUB 94.1 tn the year before.

Lending volumes gained a mere 3% following impressive 12% in 2018. Despite continuing weak population income dynamics, expansion rate of retail lending experienced a slight decline with the total amount of loans growing by 18.5% in the reporting year. Loans to individuals were increasing amid slow recovery of disposable income and declining interest rates caused by CBR’s monetary policy easing. At the same time, debt burden in unsecured consumer lending amounted to 8.9% by October 1 approaching an all-time high of 9.3% reported in 2014. The regulator responded by tightening measures obliging credit institutions and microlenders to calculate the debt burden indicator of a borrower and introduced additional requirements to capital attributed to loans and microloans issued to borrowers with a high level of debt burden. Corporate lending grew by a mere 1.5% (2018: 10.5%). Less pronounced growth in the corporate loan portfolio is also associated with a decline in volume of foreign currency loans and their revaluation due to strengthening rouble.

Banking sector assets

The share of non-performing retail loans continued to decrease reaching 4.3% compared to 5.1% in 2018 and 7.0% in 2017, while the absolute volume of the overdue loans remained virtually unchanged. The share of non-performing corporate loans rose from 6.3% to 7.8% by the end of 2019.

RAS net profit of Russian banks increased one-and-a-half times reaching RUB 2.04 tn, up from RUB 1.3 tn in 2018. According to the Bank of Russia, the weighted average interest rate on RUB loans to non-financial institutions with over a year maturity reduced from 9.9% per annum in January to 8.7% in November. Similar werethe dynamics of short-term loans with an average rate on loans with a maturity of up to one year decreasing from 9.26% to 7.8%.


St. Petersburg’s economy continued its growth in the reporting year: industrial production index went up by 4.8% (+5.0%, y-o-y) mostly due to various upward trends in the processing industry, the share of which in total volume made up 91.9%. In particular, the production of electric equipment increased by 34.9%, of finished metal products excluding equipment by 29.4%, medicine and medical materials by 6.3%. Gross turnover of the St. Petersburg enterprises climbed by 8.2% to RUB 13.9 tn. At the same time, wholesale turnover amounted to RUB 8.4 tn, a 0.7% increase from 2018. Retail turnover etched up 0.9% in real terms amounting to RUB 1.5 tn.