Russia – a modest recovery after a more limited slowdown?

09:49 by Hubert Fromlet, Kalmar

Also Russia was – and still is – sharply hit by covid-19. For this reason, nobody should be surprised that Russian GDP has shrunk in 2020, probably by 3 ½ % – 4 % (will be published on February 3). This annual fall of GDP looks, however less dramatic than in most other European countries.

But how strong will a Russian rebound of GDP growth turn out to be – hopefully already in 2021? More than the generally expected growth rate of 2.5 – 3% which may be even less than predicted or possible EU growth? The development of covid-19 cases/vaccinations and GDP growth of the EU and China will play an important role in the Russian growth context for the year to come – but also the future political relations between the Biden administration and Russia.

In 2020, April and May were shocking months when GDP growth declined by 9.5 and by 8.9 % (yoy). During the following months, GDP drops stayed at around 4 %; the latest available number showed a decline by 3.7 % in November 2020 (yes, the Russian Ministry of Economic Development publishes monthly GDP numbers).

Slight signs of recovery and a recommendation

At the end of 2020, there were signs of a slight recovery in Russian industry when comparing with previous months but not yet when relating to the development one year earlier. Retail sales recovered visibly from late spring to the end of summer but have been stagnating again in the past few months (mom). A new and indicating number for consumer confidence during Q4 will be published on January 18.

As a major reason for concern remains the development of fixed investments, last year clearly under the level of 2010 (like, for example, Brazil). This negative investment trend must be reversed if Russia ever should become able to enter a promising structural trend of its growth potential. A better investment performance could also lead to more diversification of products, also of those for exports in order to decrease the dependence on exports of energy (commodity) products.

Finally, I recommend my readers to regularly follow the illuminating weekly reports of the Finnish BOFIT Institute (The Bank of Finland Institute for Emerging Economies) which is linked to the central bank of Finland (Bank of Finland). BOFIT also prepares interesting forecasts on the Russian (and Chinese) economy https://www.bofit.fi/en/publications/

Hubert Fromlet
Affiliate Professor at the School of Business and Economics, Linnaeus University
Editorial board

 

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