Russia: Growth slumps to three-year low in 2019 despite likely upturn in Q4
The Russian economy slowed sharply last year. According to a preliminary estimate released by Rosstat on 3 February, GDP grew just 1.3% in annual terms in 2019, almost half 2018’s revised 2.5% increase (previously reported: +2.3% year-on-year) and marking the weakest expansion since 2016. That said, although quarterly data is not yet available, full-year results suggest that annual growth likely firmed up further in Q4 2019 after accelerating to 1.7% in Q3 2019.
Plummeting external demand was largely to blame for the overall downturn in 2019. Exports slipped into contraction for the first time in over a decade (2019: -2.1% yoy; 2018: +5.5% yoy), amid elevated trade uncertainties, lackluster demand for energy products and a slowing global economy. Import growth, meanwhile, was largely sustained from last year (2019: +2.2% yoy; 2018: +2.6% yoy), leading to a deterioration in the external sector’s contribution to the overall outturn.
On the domestic front, metrics were slightly more upbeat than last year. Fixed investment gained some pace following last year’s near stagnation (2019: +1.4% yoy; 2018: +0.1% yoy) while government consumption grew at the strongest pace since 2008 (2019: +2.8% yoy; 2018: +1.3% yoy), supported by higher spending on the “national projects” program. On a less positive note, household consumption lost traction (2019: +2.3% yoy; 2018: +3.3% yoy), weighed on by an increase in the VAT rate, lackluster consumer demand and downbeat sentiment.
Growth is seen strengthening this year, thanks to overdue fiscal stimulus and a more accommodative monetary policy, both of which should bolster domestic demand. That said, threats to the outlook include further delays to the government’s infrastructure investment program, volatile global commodity prices, frail external demand, trade wars and the recent coronavirus outbreak.
Highlighting the challenges threatening the 2020 outlook, Dmitry Dolgin, chief Russia economist at ING, noted:
“2019 was a year of strong financial markets and weak economic growth in Russia, and even before the Coronavirus outbreak it seemed that 2020 could bring the opposite result. While the fiscal stimulus of 2020 may assure some improvement in local state-driven consumption and investment demand, the resulting pick-up in imports may erode the ruble’s fundamentals and limit the scope for monetary policy easing because of higher inflationary risks. Meanwhile, the said virus emergency is the new factor of uncertainty for economic and market forecasts, as it may lower Russia’s exports of goods and services in both real and nominal terms.”