Russia: GDP plunges in Q2 as Covid-19 hammers domestic activity
October 2, 2020
A third GDP estimate released by Rosstat on 2 October confirmed that the economy contracted 8.0% year-on-year in the second quarter, swinging from Q1’s 1.6% expansion and marking the sharpest downturn in activity since Q3 2009. Moreover, the economy shrank 3.2% in quarter-on-quarter seasonally-adjusted terms (Q1: -0.9% qoq sa).
Q2’s annual contraction was chiefly driven by an unprecedented plunge in domestic demand due to the constraining effects of the pandemic. Private consumption nosedived 22.2% in Q2, contrasting Q1’s 3.3% growth and marking the worst result in the series’ history. Moreover, fixed investment plunged a record 11.7% in the quarter, after growing 1.8% at the outset of the year. Meanwhile, government consumption growth ticked up to 1.6% in Q2 from 1.4% in the previous quarter, softening the blow somewhat.
On the external front, exports of goods and services edged up 0.3% in annual terms in Q2, rebounding from Q1’s 3.4% drop. In contrast, imports of goods and services plunged 22.2% in the quarter, after growing 1.1% in Q1. As a result, the external sector’s contribution to overall GDP improved markedly in Q2.
Looking ahead, the economy is expected to gradually recover in the coming quarters as the pandemic subsides. That said, still-low global oil prices, geopolitical risks, eviscerated consumer and business confidence and a prolonged health crisis all cloud the outlook.
Commenting on the result, Artem Zaigrin, chief economist at SOVA Capital, noted:
“The GDP production breakdown points to a shallower contraction in 2Q20, which is in line with releases of consumer-based, industrial-alternative and high-frequency indicators. […] The new release technically brings our FY20 forecast to -4% YoY. However, more efficient fiscal injections, delayed demand in July and August, higher demand for non-food items due to FX volatility and greater tourism activity could provide tailwinds for GDP dynamics in 3Q20. As a result, this could bring further upside risks to our 3Q20 growth forecast, possibly narrowing the contraction gap even more.”
Author: Almanas Stanapedis, Economist