Russia GDP Q2 2019

Russia: Second estimate confirms growth remained weak in Q2 despite accelerating

GDP growth increased to 0.9% year-on-year in the second quarter of 2019, according to a second estimate released by Rosstat on 9 September. This was almost double Q1’s 0.5% expansion and in line with the preliminary figure, although still marked an overall weak result for the Russian economy.

An upturn in the services sector largely drove the improvement in the second quarter. Financial and insurance activities expanded 7.9% year-on-year in Q2, accelerating from Q1’s 7.6% increase. Moreover, activity in the real estate sub-sector rebounded from a 3.5% decline in Q1 to a 1.3% rise in Q2. Lastly, the downturn in the wholesale and trade activities sub-sector softened markedly in the second quarter (Q2: -0.6% year-on-year; Q1: -3.0% yoy), signaling that a recovery in consumer demand might be underway. That said, information and communication activities swung to contraction, declining 2.0% in Q2 (Q1: +1.2% yoy).

The picture in the all-important industrial sector was bleaker, however. Mining activity rose at a milder rate in Q2, largely due to falling global crude prices (Q2: +3.0% yoy; Q1: +4.6% yoy). Furthermore, growth in the manufacturing sector remained muted (Q2: +0.6% yoy; Q1: +0.6% yoy) and the construction sector recorded zero growth for the second consecutive quarter. On a more positive note, growth in electricity, gas and steam, and air conditioning output rebounded (Q2: +2.3% yoy; Q1: -1.0% yoy), cushioning the industrial sector’s overall downturn somewhat.

Meanwhile, activity in the agriculture, forestry and fishing sector inched up 0.1%, contrasting a 1.2% contraction in Q1. The slight upturn was largely due to earlier harvesting.

Looking ahead, growth is expected to pick up in the second half of 2019 as both monetary and fiscal policy are becoming more supportive. That said, the economy is not out of the woods just yet, as noted by Dmitry Dolgin, chief economist at ING Russia:

“Russian GDP growth accelerated modestly in 2Q19 amid normalization of budget spending growth, and some further pick-up is on the cards. Yet the structure of growth suggests little optimism outside state-driven sectors. […] The weakness in consumption-related sectors and declining support from commodity extraction will likely limit the [H2] recovery. Further acceleration in 2020 is possible depending on the traction on the National Projects and the mood in the consumption-driven sectors.”

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