Russian economy continues to climb after Covid crisis after lockdown
(Bloomberg) – The Russian economy has continued to rebound after its pandemic-induced recession in the fourth quarter of 2020, easing its contraction as President Vladimir Putin chose not to impose a second national lockdown.
The gross domestic product fell by 1.8% compared to a year ago, announced Thursday the Federal Statistical Service. This was less than economists’ median forecast for a drop of 2.2%. The full-year contraction was revised to 3% from 3.1%, the service said, also updating the previous quarters.
The economy of the world’s largest energy exporter contracted less than many of its peers last year, with Russia imposing lighter Covid-19 restrictions following an initial lockdown. Its service sector is also relatively small as a percentage of production.
Inflation, triggered by rising global food prices and the weakness of the ruble, accelerated further amid a recovery in consumption, prompting the Bank of Russia to raise interest rates for the first time since 2018 last month, with further increases likely.
What our economists say:
“Some of the strength in GDP at the end of the year seemed fleeting, and the risks from the virus and sanctions certainly remain high. But more recent data suggests that Russia’s recovery has in fact accelerated since the fourth quarter. “
–Scott Johnson, Bloomberg Economics
The Russian government is ending pandemic support measures while also planning to increase infrastructure spending this year, including tapping into its $ 182 billion wealth fund. Finance Minister Anton Siluanov said the fund’s money could start flowing in the first half of this year, for a total of 1 trillion rubles ($ 13 billion) over 3 years, or about 1% of the total production of Russia.
At current oil prices, the economy could grow by around 2.5% this year, according to Alexandra Suslina, budget specialist at the Economic Expert Group, a Moscow think tank.
“The economy is slowly recovering,” Suslina said. “The expenditure of the heritage fund will increase economic indicators, but will not bring Russia to a new level of growth. It will be a short-lived impact. “
The weakness of the ruble and the surge in inflation are putting additional pressure on the deteriorating standard of living of Russians. Real disposable income is still around 10% below levels reached before Putin’s annexation of Crimea in 2014, which triggered international sanctions.
The government has used price controls on some basic foodstuffs in an attempt to contain inflation, which rose in February at the fastest rate since 2016. Consumer price growth reached 5.8% in February. March 15, estimated the central bank.
As countries in Europe experience a third wave of Covid-19 infections, pushing some governments into further lockdowns, Russia continues to ease restrictions as recorded cases decline. Yet an official campaign to encourage mass vaccination has so far produced little public response.
Although Putin ordered the program to start in December, only about 4.3% of people in Russia received a first dose of the vaccine, compared to 11% in Turkey, almost 30% in the United States and almost 50% in the United States. UK.
“While the percentage of the population vaccinated remains low, Russia will remain exposed to the risk of a damaging third wave that could hurt the prospects for recovery,” said Tatiana Orlova, analyst at Emerginomics in London. “The reluctance of the population towards vaccines is, in my opinion, a substantial risk to the short-term economic outlook. “
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