Russia: Activity speeds up in the fourth quarter
GDP growth improved to 5.0% year on year in the fourth quarter, from 4.0% in the third quarter, according to quarterly national accounts data released by Rosstat on 8 April.
Looking at the breakdown by components, household spending growth fell to 7.1% in Q4, following a 9.5% increase in the third quarter. Meanwhile, government consumption growth slowed to a six-year low, expanding 1.1% in the fourth quarter (Q3: +1.3% yoy). Lastly, fixed investment growth fell to 5.2% in Q4 (Q3: +8.2% yoy). That said, total investment growth accelerated in Q4, pointing to a positive effect on GDP stemming from the change in inventories.
On the external front, exports of goods and services increased 7.1% on an annual basis in the fourth quarter, which was below the third quarter’s 8.7% expansion. In addition, imports of goods and services growth softened to 17.7% in Q4 (Q3: +19.2% yoy).
On a seasonally-adjusted quarter-on-quarter basis, economic growth gathered momentum, rising to 0.4% in Q4, from the previous quarter’s 0.1% increase. Q4’s reading marked the best result since Q4 2020.
Looking ahead, the outlook appears grim. The fallout from the Russia-Ukraine war is expected to push the Russian economy into a deep recession this year, due to the country’s growing international isolation and crippled financial system, combined with the mass self-sanctioning of international companies and the continuous exodus of foreign capital. That said, GDP likely expanded in Q1 2021 as the bulk of the sanctions were only unleashed at the end of the quarter. Looking beyond Q1, the outlook is very uncertain and volatile: Much will depend on how long the war drags on and how Western allies respond to a long-term conflict or an escalation in military confrontation.
Commenting on the GDP outlook, analysts at UniCredit noted:
“If Russia continues to export oil and gas to Europe, we expect its economy to shrink by around 12% this year (peak-to-trough of around 20%), with a muted rebound in 2023 akin to stagnation. […] If the EU stops importing oil and gas from Russia, the Russian economy could shrink by around 20% this year and fail to rebound in 2023.”
Meanwhile, analysts at Goldman Sachs said:
“We expect the Russian economy to decline by 10.0% year on year this year, with both exports and domestic demand declining by about that margin. Export volumes are likely to fall by close to 20.0% yoy in Q2 but recover towards the end of the year […]. By contrast, we expect the decline in domestic demand to be less severe in the short run but much longer-lasting. […] Restrictions on exports to Russia, as well as Western firms leaving the Russian market, will have a longer-lasting impact on the economy. Similarly, sanctions on new investments in Russia announced by the US this week will have an impact on growth in the future. As a result, we currently forecast a 5 percentage point hit to the level of potential GDP and a 1.5–2.0 percentage point impact on potential GDP growth (from 2.8% to 1.0%).”