Page 18 - RusRPTJul20

2.11 ​ ​Problems with measuring the crisis
If taken at their face value, the data so far shows that the crisis in the Russian economy in April and May was not as deep as expected.
According to the Russian Ministry of Economic Development​, the most integrated indicator, i.e. the real GDP, fell by “only” 12% in April after growing by 0.8% in March. Vladimir Putin formally announced a non-working regime throughout the country for the whole of April and early May.
Industries that account for approx. 56% of gross value added in the economy were put on hold, either completely or partially​, while 44% of manufacturing plants continued to operate (i.e. mining, oil refining, metallurgy, power generation, food processing, pharmaceuticals, and some other industries, which is why most of them did not experience much decline). According to economists’ ​predictions​, the decline in real GDP in April would be closer to 20%.
Other indicators in April and May showed mixed dynamics ​but, according to official data, there was no failure on all fronts. According to Rosstat, the industrial output index fell by a moderate 6.6% in annual terms, which was less than the predicted decline of up to 10%. Cargo transport by the monopolist railway company fell by 5.9% year-on-year in April, and slightly less in May: 5.4%. The unemployment rate rose markedly in April, to 5.8% from 4.7% in the previous month. Even with the rise, this figure is still low, especially compared to the pessimistic forecasts of some economists. Contrary to initial concerns about a price leap from a weakening ruble, annual inflation stood at 3% for May (below the Bank of Russia’s target of 4%). This opened the way for the key interest rate to be decreased to a record low at the next Central Bank meeting. Meanwhile, the ruble is almost back to its early March figure, observed before oil prices collapsed; the price of one Urals barrel rose to nearly $40 a month, a level, which can accommodate the Russian budget.
However, some indicators, primarily related to consumer demand, showed a double-digit decline​. Retail trade sales ​nosedived​ in April by 23.4% versus April 2019. This proved much worse than the market consensus of around -18%. Versus March, it was down 27%. Sales of non-food products collapsed by 36.7% year-on-year. This deep decline in retail comes from a temporary closure of retail stores and social distancing. For example, stores for non-food products suspended their operations in late March. Online shopping did not compensate for this. The share of this segment in total retail turnover in Russia does ​not exceed​ 5% (compared to 12% in the USA and 37% in China).
Even with supermarkets staying open, retail sales of foodstuffs also sank in April by 9.3% year-on-year. ​Less affluent Russians started to economise on food, spooked by income declines. After weak growth of about 1% in 2018–2019, real disposable income ​dropped​ again (by 0.2%) in the first quarter of 2020, when the crisis was emerging. The stagnation of household incomes since 2014 is a sensitive issue for the Kremlin and the government. Plans to reverse this trend have failed. Real incomes by the start of 2020 were 7% lower​ than the pre–sanctions levels in 2013. Even if we take the official, rather optimistic forecast prepared by the Ministry of Economic Development, stating that real incomes will fall by 3.8% in 2020, they will already be 11% below the 2013 levels at the end of this year. Forecasts prepared by independent economists, meanwhile, are starker. Take the Higher School of Economics, which ​expects​ real incomes of Russian citizens to fall by 8–12% in 2020, depending on the scenario. Here, the gap versus 2013 will reach a critical level of 15–18%.
The statistics do not paint a complete picture
18​ RUSSIA Country Report​ July 2020 ​ ​www.intellinews.com