Page 4 - RusRPTJul20
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1.0 Executive summary
Russia economy was beginning to recover in June as the coronacrisis restrictions were lifted. Moreover, economists report that the impact of the crisis have been less sever than first feared, although the impact of the double oil price collapse and stop-shock have been very damaging.
Russia’s gross domestic product (GDP) may fall by 5.2% in 2020, and rise around 3% in 2021, Moscow’s Higher School of Economics (HSE) said in a research note on June 6..
“According to our assessment, GDP may decline by 9.5% on the year in April–June, then by 6.9% and by 5.4% in July–September and October–December, respectively. A bounce-back will follow after the second quarter’s slump, and then the recovery will slow down,” the school said.
However, a lot of uncertainty surrounds the predictions. Russia’s economy ministry has improved its outlook on the country’s rebound from COVID. The ministry now expects GDP to decline 4.8% this year, up from a 5% decline in its May forecasts. But at the same time the Fitch worsened its outlook for 2020 from 5% to 5.8% decline.
On the political front, the Kremlin was totally focused on getting its controversial referendum on changing the constitution to zero Russian President Vladimir Putin’s presidential term count so he can stay on until 2036.
bne IntelliNews h ouse view on the constitutional change is that Putin needs the uncertainty over his long terms plans to prevent infighting amongst the elite in a succession battle, which would undermine Putin’s power. As to if he will stay on after his current term expires in 2024, we are of the view that even Putin doesn't know. He has always liked to keep his options open and much will depend on the state of the country at this point. The Kremlin has huge investment plans in the form of the 12 national projects that are supposed to return some prosperity to the country. If this fails Putin may well remain in place to ensure stability. Putin fed this fire in June by saying he had not ruled out the possibility of running again at the end of this term.
The May data shows economy remains dismal. The dynamic in the real sector would have seen a stronger reversal last month if not for oil and gas production cuts, albeit the consumer sector still remains under significant pressure.
Sectors connected to the consumer remain under the most pressure. Paid services to the population contracted by 39.5% y/y, while the decline in the volume of retail sales was slightly smaller than a month earlier (-19.2% y/y v -23.2%) as an increased number of retailers were allowed to restart operations.
However, the macro-fundamentals remain very solid. gross international reserves (GIR) were up again to $570bn, inflation remains remarkably low at 3% in May and unemployment ticked up to 5.8%, but is still very modest given the size of the shock. Indeed the health of the economy was strong enough
4 RUSSIA Country Report July 2020 www.intellinews.com
