Russia’s Growth Deteriorates
Growth seems to have recovered slightly in the second quarter, following a lackluster first-quarter performance which was dented by sliding investment activity and faltering exports. In Q2, economic activity picked up slightly on sturdier industrial production growth, which was underpinned by solid manufacturing output, and increased infrastructure spending under the government’s “national projects”.
OPEC+ oil production restrictions and lower gas demand capped the increase, however. Meanwhile, although consumer demand metrics weakened, as suggested by retail sales growth decelerating to a two-year low in Q2, there were signs of improving conditions at the end of the quarter. Higher real wages in Q2 and a lower unemployment rate, which dropped to an all-time low in June, boded well for household consumption, which seemingly also benefited from gradually easing inflation thanks to a relatively strong ruble.
Growth will sink this year, reflecting wavering household spending weighed on by the higher VAT rate, and a challenging external backdrop amid restricted oil output and weak gas demand. Looser fiscal and monetary policies should cushion the slowdown somewhat, however, while surging public infrastructure spending under the “national projects” should boost growth in 2020. FocusEconomics panelists see growth at 1.2% in 2019, which is down 0.2 percentage points from last month’s forecast. In 2020, GDP is seen increasing 1.8%.
Inflation fell to 4.7% in June (May: 5.1%), edging slightly closer to the Central Bank’s 4.0% target. Inflation receded faster than expected amid softer food inflation thanks to the early harvest in June and as consumer demand remained frail. A relatively strong ruble and soft consumer demand conditions should see inflation ease further in the second half of the year. Inflation is seen ending 2019 at 4.3% and 2020 at 3.9%.
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Much has happened this morning, so stay tuned for updates.
The next Russia report will be out the end of August.
Report from Focus Economics.
