Russia: GDP contracts only mildly in the first quarter
GDP declined at a softer pace of 0.7% year-on-year in the first quarter, improving from the 1.8% contraction logged in the fourth quarter of last year. Q1’s reading marked the best result since Q1 2020. On a seasonally-adjusted quarter-on-quarter basis, GDP recorded a flat reading in Q1, up from the previous quarter’s 0.2% decrease.
The upturn in annual terms reflected improvements in private consumption, fixed investment and exports compared to the previous period, chiefly thanks to easing lockdown restrictions and healthier external demand. Household spending fell at a more moderate rate of 2.8% year-on-year in the first quarter, which marked the best reading since Q1 2020 (Q4 2020: -5.7% yoy). Moreover, fixed investment fell at a slower pace of 0.4% in Q1, easing from the 2.1% contraction recorded in the previous quarter. However, government consumption grew at the slowest pace in over five years, expanding 0.3% in the quarter (Q4 2020: +4.1% yoy), thus weighing somewhat on the overall outturn.
On the external front, exports of goods and services declined at a milder rate of 2.4% year-on-year in the first quarter (Q4 2020: -6.5% yoy). Similarly, imports of goods and services fell at a softer pace of 2.1% in Q1 (Q4 2020: -5.5% yoy), marking the best reading since Q1 2020.
Looking ahead, GDP is expected to rebound this year, as the lifting of restrictions at home thanks to the vaccine rollout revives domestic demand. Similarly, global vaccination campaigns should rekindle foreign demand, which, coupled with a healthier global oil market overall, bodes well for the external sector.
Commenting on the outlook, Artem Zaigrin, chief economist at SOVA Capital, struck a rather optimistic tone:
“Russia’s 4M21 performance has led us to upgrade our Q2 2021 and 2021 forecasts in May to respective growths of 8.5% yoy and 3.4% yoy. We expect the recovery momentum to moderate as the economy reaches its potential
(both in the energy and non-energy sectors) closer to year-end 2021, and we forecast GDP growth of 2.0% yoy in 2022.”