Russia: Growth plummets in Q1 as investment activity tumbles
A third estimate of national accounts data released by Rosstat on 3 July confirmed that growth plunged to 0.5% year-on-year in the first quarter of 2019. This was notably below Q4’s 2.7% outturn and matched both the preliminary figure and the second estimate released earlier in the year.
The first quarter downturn was broad-based. Languishing investment activity led the deterioration on the domestic front, with fixed investment contracting 2.6% in annual terms in Q1, in contrast to Q4’s 0.2% uptick. A weaker construction sector, sluggish start to the government’s ‘national projects’ program and downbeat private sector activity were behind the contraction. In addition, private consumption growth fell to 1.6% in the first quarter, from 2.6% in the previous quarter, as a hike in the VAT, consumer pessimism and higher inflation hurt consumer demand. Lastly, government consumption rose a meagre 0.2% in Q1, ticking down from Q4’s 0.2% increase.
In the external arena, metrics were similarly downbeat. Exports dipped 0.4% in the first quarter, contrasting the previous quarter’s healthy 2.6% expansion. Soft demand from Europe—due to a relatively mild winter—and constrained oil output more than offset higher oil prices, dragging on exports. Meanwhile, imports fell 1.6% in Q1, deteriorating further from Q4’s 0.3% dip and reflecting subdued consumer demand.
Looking ahead, deteriorating private consumption and a downbeat external sector will continue to weigh on growth this year, although an uptick in public spending should provide some relief. Monetary policy easing should spur growth slightly in the coming quarters, while a stronger boost over the medium-term is expected as the “national projects” plan gains traction.