Consumption in Russia

Russia - Consumption

Growth picks up in Q2 on sturdier domestic demand

Annual growth accelerated to 0.9% in the second quarter, as confirmed by a third estimate of national accounts data released by Rosstat on 2 October. This was nearly double the first quarter’s 0.5% expansion and matched both the preliminary figure and the second estimate released earlier in the year. That said, the second-quarter outturn still marked a weak result for the Russian economy by historical standards.

A marked acceleration in domestic demand (Q2: +2.4% year-on-year; Q1: +0.5% yoy) led the acceleration in the second quarter. Household consumption growth jumped to a one-and-a-half year high (Q2: +2.8% yoy; Q1: +1.6% yoy), supported by a tightening labor market, lower inflation and slowly improving sentiment among Russian consumers. In further positive news, fixed investment rebounded from the previous quarter’s contraction (Q2: +1.0% yoy; Q1: -2.6% yoy), while public spending growth was steady at 0.18%.

On the external front, metrics were considerably more downbeat. Exports contracted at a much sharper pace in the second quarter (Q2: -4.9% yoy; Q1: -0.4% yoy), weighed on by trade-war uncertainty, slowing global demand and volatile global crude prices, as well as restricted oil production at home. Imports, meanwhile, rebounded mildly in the same period (Q2: +0.1% yoy; Q1: -1.6% yoy), reflecting stronger domestic demand. As such, the external sector’s contribution to growth deteriorated markedly in the second quarter.

Looking forward, growth should pick up in 2020 after diving this year, thanks to accelerating domestic demand amid increased fiscal stimulus and a more accommodative monetary policy environment. The continued threat of sanctions, volatile commodity prices and trade wars remain key downside risks to the outlook, however.

The Central Bank sees the economy growing between 0.8% and 1.3% in 2019. FocusEconomics Consensus Forecast panelists, meanwhile, see GDP expanding 1.1% in 2019, which is down 0.1 percentage points from last month’s forecast. In 2020, the panel sees the economy growing 1.8%, which is unchanged from last month’s forecast.