Russia: GDP growth accelerates in Q1, beats market expectations
According to a preliminary estimate, annual GDP growth accelerated to 5.4% in the first quarter. Q1’s result was above Q4 2023’s 4.9% expansion and surprised markets on the upside.
Although the release did not include a breakdown by subcomponent, available monthly data suggests that the upturn was broad-based. On the production side, all key sectors of the economy, barring construction, seemed to have recorded robust growth in the quarter. Industrial output rose at the joint-fastest clip in two years, buoyed by rebounding mining activity and faster growth in the manufacturing and energy supply sectors. That said, on the expenditure side, surging inflation and tight monetary conditions likely weighed on household spending; retail trade growth lost momentum in the quarter.
On the external front, the nominal value of merchandise exports contracted at the slowest pace in six quarters, contrasting a double-digit fall in nominal imports and pointing to a recovering external sector performance.
Our panelists see growth slowing from Q2 onwards and the economy losing momentum in 2024 as a whole from 2023. The fallout of the Russia-Ukraine war will continue to weigh on activity: Sanctions, a weak ruble, labor shortages, high inflation and tight financing conditions will depress domestic demand, outweighing a shallow rebound forecast in exports.
Commenting on the economic outlook, analysts at the EIU said:
“We maintain our forecast of muted growth throughout the forecast period, driven almost exclusively by war-related government spending and investment. The oil sector will continue to be a mainstay of the economy, as Russia has found ways to circumvent sanctions through shadow shipping supply routes and other mechanisms. In particular, countries not imposing sanctions can import Russian crude, refine it and re-export it legally.”