Russia: Growth decelerates in Q1; worse to come in Q2
GDP growth slumped to 3.5% year on year in the first quarter of 2022, according to a preliminary estimate released by Rosstat on 18 May. The upturn came on the heels of the previous quarter’s 5.0% expansion and marked the weakest result in a year.
Although a complete breakdown of components is not yet available, the downturn likely came on the back of weakening domestic demand amid the fallout from the Russia-Ukraine war and associated international sanctions. Notably, economic conditions deteriorated strongly towards the end of the quarter, with the economy now expected to slip into deep recession in Q2.
Commenting on economic conditions in Q1, analysts at Goldman Sachs said:
“First, (energy) commodity exports continued widely uninterrupted in Q1 as shown by shipping data whereas general supply uncertainty has pushed global commodity prices higher […] Moreover, while exports have been less affected so far, imports have fallen due to sanctions and self-imposed restrictions by firms. Second, high-frequency consumer activity data pointed towards increased purchases in the first weeks of the conflict well above normal levels. […] Lastly, although our Financial Conditions Index has tightened sharply since February (mostly due to CDS and rates), it takes around 1–3 quarters for the effect to pass through.”
Meanwhile, on the GDP outlook, analysts at Scope Ratings said:
“We project Russia’s economic output to contract by at least 10% this year […] To blame are the collapse in private consumption, in investment and in imports as sanctions have taken hold. Russia’s important non-extractive industries—machinery and electrical equipment, computers, cars, pharmaceuticals—are reliant upon imported components. […] In the absence of significant economic restructuring, and assuming sanctions remain in place, we expect Russia’s medium-run growth potential to moderate to 1–1.5% year (from 1.5–2.0%), far below that of most of central and eastern Europe where living standards are far higher.”