Page 30 - RusRPTSept19

pace in the second half of this year boosting growth. Secondly the CBR cut rates by 25bp last month and is expected to cut again at its next monetary policy meeting in September, which will also give growth a shot in the arm.
“We expect growth to strengthen a little in the coming quarters. With inflation falling and the tight labour market pointing to stronger wage growth, retail spending should pick up,” Capital Economics said. “And fiscal and monetary policy are becoming more supportive. But we think GDP will expand by just 0.8% over this year as a whole (the figure will be depressed by the weak Q1), which is lower than the consensus forecast (1.2%). Our GDP growth forecast for 2020 is 1.8%.”
Rosstat kept its flash estimate of +0.55% y/y GDP growth in 1Q19 unchanged, and provided expenditure details. The highest growth rates and most significant contribution came from household consumption (+1.6% y/y, +0.8pp to the total growth rate of 0.55% y/y), while the most negative contribution came from fixed capital formation, which declined -2.6%, on the back of the high base effects.
Despite the dominating narrative, focused on the expansion of retail lending as a key (if not the sole) supporting factor for domestic consumption growth, the data draws a dissenting picture: household consumption growth remains well aligned the growth of real wages – and, if anything, it remains slightly behind them. Overall, current recovery, despite the initially milder contraction, remains the slowest of the three post recession recoveries in modern history.
Sanctions have had a less severe impact on Russia’s GDP growth than low oil prices, the International Monetary Fund (IMF) said in its latest report on the country.
Between 2014 and 2018, sanctions slowed the growth of the Russian economy by an average of 0.2 percentage points per year, or one trillion rubles ($15bn) in monetary terms. Yet the fall in global oil prices weakened the country’s GDP growth rate by an average of 0.65 percentage points ($48.75bn) per year over the same period, according to the IMF’s annual Country Report.
Russia’s economic growth was further weakened by the country’s tight fiscal policy and restrictive monetary policy, accounting for 0.1 and 0.2 percentage points of lost growth, respectively.
The combined impact of sanctions, low oil prices, and Russia’s fiscal and monetary policies is almost 1.2 percentage points in lost economic growth per year, the RBC news website reported. Over the five years between 2014 and 2018 Russian GDP grew by just 2.5%, down from a theoretical 3.5% had sanctions not been introduced and 5.9% had all of those factors not existed.
“In our opinion, the effect of sanctions is higher: I would estimate the average impact at 0.3-0.4 percentage points per year, that’s around 1.5 percentage points over the five year period,” the director of the Economic Expert Group Evsey Gurvich told RBC.
Sanctions originally had the biggest impact on Russia’s GDP growth, accounting for around 0.5 percentage points in lost growth, but the economy has since adapted and is starting to return to potential annual growth of around 1.5%, Natalia Akindinova, director of the Higher School of Economics Center of Development Institute told RBC.
30 RUSSIA Country Report September 2019 www.intellinews.com