Russian economy expected to reach pre-pandemic level within two months – RealnoeVremya.com
The contraction of the Russian economy in 2020 was the strongest in eleven years, but the pace of the recovery is also exceeding expectations. However, the rebound should run out of steam without structural reforms and without investment.
Russia’s economy will return to pre-pandemic levels in the coming weeks, which is sooner than expected, according to Reuters quoting Deputy Minister of Economic Development Polina Kryuchkova. The ministry expects GDP to return to fourth quarter 2019 levels in June or July. “The recovery is exceeding expectations in terms of speed and timing,” Kryuchkova said in an interview.
The country’s economy is recovering from a 3% contraction in 2020, the strongest in eleven years. According to Kryuchkova, consumer demand and industrial production are rebounding even as oil production is hampered by the global OPEC + agreement to cut production. Thus, the ministry considers that GDP growth could slightly exceed the latest forecast of 2.9% this year. This is still much slower than in 2000-2008, when the economy grew on average about 7% per year, boosted by rising oil prices.
However, in the longer term, Russia is likely to face risks to its exports due to global efforts to reduce its carbon footprint. Among other risks, Kryuchkova cited the fragility of domestic consumer demand and uncertainty over how the world is abandoning soft monetary and fiscal policies brought on by the fallout from the coronavirus crisis. Investing activity is also essential for the intended growth in the future. “If no special measures to support investment activity, technological breakthroughs, are taken, a steady growth rate [in Russia] is seen at around 2%, ”she said. Analysts agree that the current rebound may run out of steam due to a lack of structural reforms and investment. Capital investment, a key driver of economic growth, declined 1.4% in 2020 as business activity was suppressed by the COVID-19 pandemic.
Meanwhile, Finance Minister Anton Siluanov considered that the national economy risks overheating and that government spending could stimulate already high annual inflation. “If we keep increasing our spending, what will we get? Overheated. Elements of overheating are already visible – high inflation, ”he told the St. Petersburg International Economic Forum. Inflation in Russia accelerated again in May and is expected to accelerate further in the coming months, according to the Central Bank report released on June 2.
By Anna Litvina