Russia: GDP contracts at softer pace in Q3
According to a preliminary estimate released by Rosstat on 12 November, GDP contracted 3.6% in annual terms in the third quarter. The result was above market expectations, and marked a softer fall than the second quarter’s 8.0% drop, which had marked the worst reading in over a decade.
Although a breakdown by components is not yet available, Q3’s improvement was seemingly spearheaded by firmer domestic demand after most lockdown restrictions were lifted in July. Household spending likely rebounded somewhat amid recovering retail sales and an uptick in consumer confidence, while monetary and fiscal stimulus measures should have further supported total consumption and investment. That said, the external sector likely dragged on the overall result, chiefly due to sinking oil exports and depressed global crude prices.
Looking ahead, GDP will likely contract again at the tail end of this year, as the pandemic continues to ravage economic activity. Next year, the economy should rebound as the effects of the pandemic are expected to subside and fiscal and monetary stimulus measures boost domestic activity. Moreover, gradually rising oil prices and recovering foreign demand bode well for the external sector.
Commenting on the outlook for Russia, Artem Zaigrin, chief economist at Sova Capital, said:
“We believe that the pace of recovery will stall in 4Q20 as the Covid-19 situation worsens, acting as a drag on mobility and services consumption. Many regions are reinstating restrictions that discourage people from visiting shopping malls and other public spaces. We maintain our FY20 GDP forecast of a 3.5% YoY decline, as we think GDP could contract 4% YoY in 4Q20. The deteriorating epidemiological situation leads to downside risks to our 2021 forecast of GDP rebounding to a growth of 2.8% YoY.”