Consumption in Russia

Russia - Consumption

Third estimate confirms slowdown in growth in Q1; recession expected

A third estimate of national accounts data released by Rosstat on 3 July confirmed that growth moderated to 1.6% year-on-year in the first quarter of 2020. This was below Q4’s 2.1% outturn and matched both the preliminary figure and the second estimate released earlier in the year. Moreover, growth fell to a one-year low of 0.3% in quarter-on-quarter and seasonally-adjusted terms (Q4 2019: +0.5% quarter-on-quarter, seasonally adjusted).

A slowdown in investment activity spearheaded the deterioration on the domestic front, with fixed investment growth slowing to 2.6% year-on-year in Q1, from Q4’s 2.9% increase. In addition, government consumption growth fell to 1.4% in Q1, from 2.3% in Q4. In contrast, private spending fared significantly better at the outset of the year, with household consumption growth accelerating to a one-and-a-half year high of 3.3% in Q1, from 2.5% in Q4.

In the external arena, metrics were significantly more downbeat. Exports of goods and services dipped 3.4% in Q1, worsening from Q4’s 2.5% drop and marking the fifth consecutive quarter of contraction. The downturn was chiefly driven by nosediving global crude oil prices and collapsing foreign demand due to increasing fallout from Covid-19 at the end of Q1. Meanwhile, imports rose 1.1% in Q1, slowing markedly from Q4’s 10.0% expansion.

Looking ahead, the economic panorama is grim. Covid-19 is battering domestic activity and foreign demand, with the largest GDP contraction most likely concentrated in Q2. Contracting investment activity and crumbling consumer demand are seen spearheading the downturn in domestic demand through year-end, while low global oil prices and compromised supply chains will likely hammer the country’s exports.

Commenting on GDP outlook, Artem Zaigrin, chief economist at SOVA Capital, noted:

“Russia’s economy dipped into a recession in April along with the rest of the world amid the COVID-19 outbreak […] Despite a more promising external backdrop, which has pushed our expectations for oil prices up from $31.6/bbl on average this year to $41.5/bbl, the duration of the lockdown will likely define the extent of the economic contraction. […] We revise our 2020 GDP forecast to -4.3% YoY vs. -3.7% YoY in April to reflect the slower reopening. The largest drop in GDP (-8.7% YoY) should occur in 2Q20, although negative growth rates will likely persist until 2Q21, only returning to pre-crisis levels nearly two years from now (YE22).”

FocusEconomics panelists project GDP shrinking 4.7% this year, which is down 0.6 percentage points from last month’s forecast. In 2021, the economy is seen rebounding 3.2%.