GDP growth wanes to five-quarter low in Q2

GDP growth wanes to five-quarter low in Q2

Russian economy loses steam, despite beating market expectations:

Russian economy loses steam, despite beating market expectations: A second release revealed that the economy tapped on the brakes in the second quarter, expanding 4.1% year on year, falling short of the first quarter’s 5.4% increase and marking the worst result since Q1 2023. That said, the print beat market expectations and a preliminary estimate of a 4.0% rise. On a seasonally adjusted quarter-on-quarter basis, economic growth waned to 0.5% in Q2, following the previous period's 1.0% growth and marking the worst reading in two years.

A second release revealed that the economy tapped on the brakes in the second quarter, expanding 4.1% year on year, falling short of the first quarter’s 5.4% increase and marking the worst result since Q1 2023. That said, the print beat market expectations and a preliminary estimate of a 4.0% rise. On a seasonally adjusted quarter-on-quarter basis, economic growth waned to 0.5% in Q2, following the previous period's 1.0% growth and marking the worst reading in two years.

Industrial and services sectors drag on growth:

Industrial and services sectors drag on growth: From a production point of view, the slowdown chiefly reflected weaker performances in the industrial and services sectors. Manufacturing output growth slowed to 8.1% year on year in Q2 (Q1: +9.0% yoy), while mining and quarrying production swung into a 1.1% contraction, contrasting the previous quarter’s 1.4% increase. In addition, growth in the wholesale and retail trade sector waned to a five-quarter low of 8.0% in Q2 (Q1: +11.4% yoy) and real estate activity rose 1.1%, deteriorating from Q1’s 1.2% expansion. That said, the agricultural sector grew 0.6% annually in the second quarter, edging up from the first quarter's 0.5% increase, and construction growth accelerated to 5.6% yoy (Q1: +4.8% yoy). Absent a breakdown by expenditure, softer real wage growth and tighter borrowing conditions in the quarter likely dragged on domestic demand. On the external front, merchandise exports rose for the first time in almost two years, contrasting a near double-digit fall in goods imports and suggesting a recovering external sector performance.

From a production point of view, the slowdown chiefly reflected weaker performances in the industrial and services sectors. Manufacturing output growth slowed to 8.1% year on year in Q2 (Q1: +9.0% yoy), while mining and quarrying production swung into a 1.1% contraction, contrasting the previous quarter’s 1.4% increase. In addition, growth in the wholesale and retail trade sector waned to a five-quarter low of 8.0% in Q2 (Q1: +11.4% yoy) and real estate activity rose 1.1%, deteriorating from Q1’s 1.2% expansion. That said, the agricultural sector grew 0.6% annually in the second quarter, edging up from the first quarter's 0.5% increase, and construction growth accelerated to 5.6% yoy (Q1: +4.8% yoy). Absent a breakdown by expenditure, softer real wage growth and tighter borrowing conditions in the quarter likely dragged on domestic demand. On the external front, merchandise exports rose for the first time in almost two years, contrasting a near double-digit fall in goods imports and suggesting a recovering external sector performance.

Economy to cool down in H2, but expand robustly overall in 2024:

Economy to cool down in H2, but expand robustly overall in 2024: Our panelists expect the economy to have continued to lose steam in Q3, and have penciled in a further slowdown for Q4. Mounting international sanctions, sky-high inflation, a tighter monetary policy backdrop, and labor shortages exacerbated by the Russia-Ukraine war will hit domestic demand. Russia’s ability to continue to circumvent sanctions is a key factor to monitor. Over 2024 as a whole, our Consensus is for GDP to expand at a similar pace to 2023.

Our panelists expect the economy to have continued to lose steam in Q3, and have penciled in a further slowdown for Q4. Mounting international sanctions, sky-high inflation, a tighter monetary policy backdrop, and labor shortages exacerbated by the Russia-Ukraine war will hit domestic demand. Russia’s ability to continue to circumvent sanctions is a key factor to monitor. Over 2024 as a whole, our Consensus is for GDP to expand at a similar pace to 2023.

Panelist insight:

Panelist insight: Clemens Grafe, analyst at Goldman Sachs, commented: “The economy is slowing now in our view with our current activity indicator showing growth of 3.3% in the 3 months to August, down from a peak of 5.5% in April, and we see GDP growth to decline from 3.5% in 2024 to a below-trend and below-consensus 1.2% in 2025.”

Clemens Grafe, analyst at Goldman Sachs, commented: “The economy is slowing now in our view with our current activity indicator showing growth of 3.3% in the 3 months to August, down from a peak of 5.5% in April, and we see GDP growth to decline from 3.5% in 2024 to a below-trend and below-consensus 1.2% in 2025.”

Consensus Forecasts and Projections for the next ten years

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