Russia: Growth nosedives in Q1
May 17, 2019
GDP growth plunged to 0.5% year-on-year in the first quarter of 2019, according to a preliminary estimate. This was notably below Q4’s 2.7% outturn and also significantly undershot expectations of a 1.2% expansion.
While a breakdown by components is not yet available, weak domestic activity and stunted trade likely drove the slowdown. Retail sales growth fell in Q1, weighed on by a hike in the VAT and downbeat sentiment, which suggests that household spending likely lost steam. Meanwhile, tight monetary policy and prudent government spending are also expected to have restrained growth, with the government’s expenditure growth coming in below target. In addition, the external sector was likely lackluster despite higher oil prices as the OPEC+ production cuts and a relatively mild European winter limited energy exports.
Commenting on the Q1 GDP release, Dmitry Dolgin, chief Russian economist at ING, explains:
“The primary cause for the GDP slowdown is the interval between the big-ticket investment projects, as major infrastructure construction projects related to World Cup 2018, Kerch Bridge, Yamal LNG, were largely completed in 2018, while the ‘National Projects’, that assume 3.6% GDP worth of annual budget spending, including 2.5% GDP on infrastructure investments, have yet to start.
Given that the slowdown is related primarily to the budget policy, we expect it to be addressed primarily through the budget means. The government will have to at least accelerate spending growth later this year in order to comply with the new annual 9% target. We also do not exclude that in case of continued GDP weakness the spending plan might be increased further.”
A comprehensive estimate of national accounts will be released in June.