Consumption in Russia

Russia - Consumption

Growth jumps in 2018

According to a preliminary estimate by the Federal State Statistics Service (Rosstat), the Russian economy gained momentum last year growing 2.3%, well above 2017’s 1.6% expansion. The reading comfortably overshot market expectations of a softer 1.9% increase and followed a sharp upward revision to construction figures in January, which has generated some uncertainty over the true state of play of the economy.

The acceleration was driven by a better performance from the external sector, while domestic dynamics were more tepid. Export growth rose to 6.3% in 2018 (2017: 5.5%), bolstered by a surge in hydrocarbon exports in the fourth quarter. However, a fresh round of production cuts came into effect in January, which will hamper momentum going forward. Meanwhile, import growth slowed dramatically from a 17.4% increase to a 3.8% expansion in 2018, eroded by the ruble’s stark depreciation in the year.

Domestic dynamics were more downbeat. Private consumption growth slid from 2017’s 3.2% to 2.2% last year. Souring sentiment—especially following the unpopular May decree, which laid out a hike in the retirement age and VAT increase—likely weighed on spending, as did a weak ruble. Government consumption also lost steam, as authorities pursued fiscal consolidation, while fixed investment growth fell to 1.5% in 2018 (2017: 6.5%). Sanctions and geopolitical-related uncertainties likely hurt sentiment.

Official figures from Rosstat are still not available for the fourth quarter and the organization also announced that revisions to quarterly data are scheduled to be released in March. The economy appears to be on a more solid footing than previously thought, and construction data was significantly revised in January from a 0.5% expansion in the first 11 months of the year to above 5.0% growth.

FocusEconomics Consensus Forecast panelists are still taking the latest data into account. At this time, they project that Russia’s GDP will increase 1.4% in 2019, which is down 0.1 percentage points from last month’s forecast, and 1.7% in 2020.