Page 9 - RusRPTSept20

the latest result for the second quarter show a contraction of 8.5% year-on- year. While that sounds bad (and is in absolute terms) it also a pretty impressive result as it is less than the contraction during the worst of the 1998 and 2008 crises. And arguably the current coronacrisis is bigger than either of those. Unlike the two previous crises this one is truly global in nature and has brought the entire plant’s businesses to a halt for months on end.
Part of the reason for Russia’s better than expected performance is the huge reserves that it has built up. Russia’s gross international reserves (GIR) topped $600bn last week, its highest level since 2008. The “fiscal fortress Russian President Vladimir Putin ha built to inure Russia’s economy to threat of the US sanctions regime has also shocked-proofed it against this March’s blows.
Russia’s slowdown has largely been due to a fall in consumption, which was further weakened by a return to falling real incomes, after a brief spurt of growth at the end of 2019, and a rise in unemployment.
Oxford Economics has introduce the index which measures economic activity on a weekly basis, according to Evgenia Sleptsova, senior economist for emerging markets at Oxford Economics, as cited by RBK.
The index is a weighted average of nine components: oil prices, electricity consumption, dynamics of financial flows in the National Payment System of the Bank of Russia, the Financial Stress Index of the Analytical Credit Rating Agency (ACRA), Google data on user visits to places of work / restaurants, cafes, centres, cinemas / public transport stops, the Watcom shopping centre attendance index , as well as statistics on the incidence of COVID-19 in Russia. The index was benchmarked at 100% at the start of March before either of the two shocks arrived and all subsequent measurements are relative to this point.
The lowest index value this year of 65%, was recorded at the end of April in the midst of the country wide lockdown. After the quarantine measures were eased on May 11 and economic activity began to recover again the index rose to 86% by mid-July. As of August 13, the recovery index remains at 86%.
This value of the index corresponds to the recovery of GDP to about 94% in August relative to the pre-crisis level. However, the Oxford index does not allow us to say how long it will take for the economy to return to the pre-crisis level of 100%.
The economic recovery to 94% is impressive given the magnitude of the initial pandemic shock, Oxford Economics notes. Sleptsova believes that the more moderate recession in the Russian economy is due to the shorter duration and severity of quarantine and a lower share of consumer services compared to developed countries.
Although the Oxford Economics index does include most of the most informative high-frequency statistical series relevant to Russia, it should be used carefully as an operational analogue of GDP, Dmitry Kulikov, Deputy Director of the ACRA Sovereign Ratings and Macroeconomic Analysis Group, told RBK: “Considering the shallow history of some initial series and, accordingly, incomplete information on the correlation between the index and GDP, perhaps it makes sense to interpret it as one of the useful indicators of the recovery of the norm in a broad sense.”
Oxford Economics assesses Russia to be in the “medium” risk category when it comes to vulnerability to external shocks, ranked a 15 from 41 of the world’s largest economies, putting it between Sweden and Belgium. The closer to the top, the higher the risks.
As ever Russia’s Achilles’ Heel is its heavy dependence on oil but in the coronacrisis it was also hit by its ageing population with a large share of citizens over the age of 65. That was mitigated by the large number of hospital
9 RUSSIA Country Report September 2020 www.intellinews.com