Russia: Third estimate confirms softer GDP contraction in Q3
A third national accounts estimate, released by Rosstat on 30 December, confirmed that GDP contracted 3.4% year-on-year in the third quarter. The result marked a considerable improvement from the second quarter’s 8.0% plunge. Meanwhile, economic activity rebounded and grew 0.7% in seasonally-adjusted quarter-on-quarter terms (Q2: -2.8% s.a. qoq).
The third quarter’s improvement was spearheaded by healthier domestic demand conditions amid the easing of most coronavirus containment measures. Household consumption fell at a notably softer, albeit still sharp, pace in the quarter (Q3: -8.4% yoy; Q2: -22.2% yoy) as non-essential businesses reopened and consumers returned to the shops. Similarly, the contraction in fixed investment nearly halved in the same period (Q3: -6.0% yoy; Q2: -11.7% yoy), thanks to rising confidence and less restricted operating conditions. Lastly, public spending growth accelerated for the third consecutive quarter to 1.8% Q3 (Q2: +1.6% yoy), thus further boosting the overall reading, although it remained well below last year’s levels.
On the external front, conditions were more downbeat. Exports of goods and services fell at the sharpest pace since current records began in Q1 2012 (Q3: -8.5% yoy; Q2: +0.3% yoy), battered by weak external demand, low global energy prices and constrained domestic oil output. Similarly, imports of goods and services continued to fall at an extremely sharp rate in the quarter (Q3: -20.2% yoy; Q2: -22.1% yoy).
The economic panorama appeared grim at the tail end of 2020, amid a spiraling number of new Covid-19 cases and associated lockdown measures. More positively, however, the economy should rebound this year as mass vaccination is rolled out and the effects of the pandemic fade. Strengthening consumer demand and a healthier external backdrop will lead the recovery, with fiscal and monetary stimulus expected to further cement the rebound.
Commenting on the economic outlook, Artem Zaigrin, chief economist at Sova Capital, noted:
“Russia’s economic performance in 4Q20 will likely be worse than in 3Q20 as the Covid-19 situation worsens, acting as a drag on mobility and services consumption. Many regions are reinstating restrictions to discourage people from visiting shopping malls and other public spaces. […] We remain comfortable with our FY20 GDP forecast of a 3.5% YoY decline, as the second wave of Covid-19 has forced us to acknowledge downsides to our 4Q20 forecast of a 4% YoY contraction, revising it to a drop of 4.2% YoY. The deteriorating epidemiological situation leads to downside risks to our 2021 forecast of GDP rebounding to a growth of 2.8% YoY, while the mass vaccination campaign could offset these effects.”