Russia: A solid recovery, but the risks remain on the downside
- In this crisis, the Russian economy had to confront two shocks at the same time – the coronavirus outbreak and the steep decline in oil prices caused by the pandemic.
- The slump in oil prices and oil production cuts have led to a decline in Russia’s exports, hit the government budget revenues, and weakened the rouble.
- As the lockdown measures were gradually lifted, the economy started to recover in the third quarter. However, the pace of the recovery is slowing as the risks remain on the downside.
- The recovery of consumer demand is expected to continue through the end of the year, although more slowly as the effect from lifted restrictions wanes; meanwhile, sluggish external demand and low oil prices continue to be a drag on the economy.
In the second quarter of this year, we saw the devastating effects of the pandemic on the economies globally. Although the contraction of the Russian economy was historically deep – 8% annually – the fall was milder than in many other large economies. The strong first-quarter growth of 1.6% means that, in the first half of 2020, the fall of the economy was 3.4% annually. In addition to the pandemic, the Russian economy was hit by the oil market crisis. Due to the slump in oil demand resulting from travelling bans and border closures introduced to limit the spread of the virus, oil prices fell sharply, and this has led to a decline in Russia’s exports, hit the government budget revenues, and weakened the rouble.
The bottom of the recession is behind us, and the economic recovery that has followed has been rapid, although uneven. The pace of the recovery slowed entering the fourth quarter as the effect of the eased measures is fading. However, the risks remain on the downside as new infections are on the rise both globally and in Russia. The following restrictions have so far remained targeted, and the government has signalled that it is doing as much as it can to avoid applying new restrictive measures to the economy. The further pace of recovery will, however, depend on the further spread of the virus, overall economic sentiment, and the government support measures, as well as the global outlook and oil prices. According to our August forecast, we expect the Russian economy to drop by 4.5% this year and rebound by 3% next year. The slightly better than expected resilience of the economy in the second quarter allows us to revise our forecast for this year a bit upwards from what we projected in August.
Analyst: Marianna Rõbinskaja, firstname.lastname@example.org, +372 888 7925