‘Output could return to the pre-virus peak by the fourth quarter’
Russia's GDP decrease in 4Q20 was smaller than expected
New data on Russia's main economic indicator confirm that the country’s economy was less affected by the pandemic than many of its counterparts last year. However, insufficient vaccination rates may jeopardise the recovery projected for 2021.
Russia’s economy continued to rebound from its pandemic-induced recession in the fourth quarter of 2020, says Bloomberg citing the latest data from the country's Federal State Statistics Service. According to the data published on 1 April, Russia's GDP contracted by 1,8% in October-December year on year beating the median forecast of economists, who expected a drop of 2,2%. The state agency also updated its data for the previous quarters of 2020 and revised full-year contraction from 3,1% to 3%.
According to Minister of Economic Development Maxim Reshetnikov, the Russian government is going to lower its current economic growth forecast of 3,3% for 2021 after the statistics service’s report, as the last year's contraction turned to be less than expected. The minister expects performance in the first quarter to be at a level of the last three months of 2020.
The Kremlin is scaling its pandemic support measures back but plans to boost infrastructure spending this year. Part of this spending will be financed through the National Wealth Fund. Minister of Finance Anton Siluanov said that money from the fund could start flowing in the first half of this year. Over three years, the state is going to spend around 1 trillion rubles ($13 billion) from its $182-billion fund, or about 1% of Russia’s total output. According to Alexandra Suslina, a budget specialist of Moscow-based Economic Expert Group, spending from the wealth fund will lift the economic indicators but won’t bring Russia to a new level of growth. “It will be a short-lived impact,” she says adding that at current oil prices, the national economy may add about 2,5% this year.
“Normalcy is a long way off, but output could return to the pre-virus peak by the fourth quarter,” considers Bloomberg's economist Scott Johnson. He says that the expanding recovery is fuelled by slowing outbreaks, progress in vaccination and higher oil prices but warns that the virus remains a threat.
A low percentage of the population vaccinated against COVID-19 keeps Russia at risk of a damaging third wave that may hurt recovery prospects, agrees Tatiana Orlova, an analyst at Emerginomics in London. “The population’s vaccine hesitancy is, in my opinion, a substantial risk to the near-term economic outlook,” she says. Less than 10% of Russia's population have received a first dose of the vaccine despite an official campaign to encourage mass vaccination. Nonetheless, the government continues to ease restrictions, as recorded cases are declining.