Page 4 - RusRPTMar20
P. 4
1.0 Executive summary
Last year, Russian GDP grew at its slowest pace in three years. The Russian economy grew 1.3% in 2019, a significant comedown from 2.5% growth in 2018 as the 12 national projects got off to a slow start. The Ministry of Economic Development now expects Russian GDP to grow 1.9% in 2020.
This year things are supposed to improve after Russian President Vladimir Putin put a rocket under the government, sacked Russian Prime Minister Dmitry Medvedev and replaced him with new Prime Minister Mikhail Mishustin and a competent team of technocrats who have one job – growth.
Spending picked up in the last quarter of 2019 and more largess will be spread on the economy this year. Real incomes are already up and retail has responded. However, the jury is still out on just how effective the drive will be.
Russian GDP growth rate was assessed at 1.6% y/y in January which is above the 0.6% y/y reported for January 2019 and 1.3% y/y GDP growth for 2019.
The growth is due to the substantial spike in federal budget expenditures in December, which supported output growth in the manufacturing industry. However, the 1.6% y/y growth rate is not strong enough to provide a buffer against a possible deterioration in economic activity related to the negative effect of the Chinese coronavirus, which hit emerging markets hard at the end of February and will almost certainly lead to lower global growth now.
The afterglow from higher government spending in the forth quarter lead to retail trade growth for January of 2.7%, -- considerably higher than the consensus forecast (2.2%) and showed a substantial acceleration from the 1.9% y/y reported for December.
The reason for the strong growth is related to the faster-than-expected increase in nominal salaries at the end of 2019: while salaries grew by an average of 7.5% y/y in 2019, in December growth jumped to 10.1% y/y. This translated into a strong 6.9% y/y increase in real salaries. Consumption has returned to Russia as a major growth driver but is still well below the levels seen in the boom years.
The federal budget expenditure exceeded RUB1.7tn in January, according to preliminary Finance Ministry estimates, which is 53% higher than January 2019 and in line with the average monthly volume in the second half of last year.
Another key driver this year will be investment as money goes into the national projects but here too things are going slowly. Even if fixed investment was up just 1.4 % in 2019, it was still an improvement from zero growth in 2018. Fixed investment to GDP was just 20.5% in 2018 and slightly over 21% in 2019, but needs to climb to the government target of 25% if it is to make a real impact on growth in 2020.
Rosstat’s preliminary figures largely corresponded with official expectations,
4 RUSSIA Country Report March 2020 www.intellinews.com
