Pace of recovery of Russian economy varies significantly depending on sector
Russia’s manufacturing, retail and service sectors have endured the COVID-19 pandemic with minimal losses, while the banking sector even benefited from it. Meanwhile, mineral extraction industries and healthcare have faced difficulties.
Although Russia’s economy has been bouncing back from the COVID-19 pandemic well, different sectors are recovering at very different speeds, says bneIntelliNews citing the Bank of Finland Institute for Economies in Transition (BOFIT). According to the bank, “manufacturing activity, when measured in the real volume of gross value added (GVA) produced, has been quite flat since summer 2019 and showed hardly any downward impact from the [COVID-19] recession last year”. At the same time, the GVA volume in Russia’s mineral extraction industries including oil & gas was around 14% lower in the first quarter of 2021 compared to its 2019 peak, largely due to an OPEC+ agreement on oil production cuts.
Meanwhile, retail sales, which were initially hurt by a pandemic-related lockdown, rapidly bounced back, as the population switched to online shopping. “The wholesale & retail branch has recovered to a notable degree from spring 2020. […] However, the recovery in wholesale and retail from the deep contraction of 2015-2016 has yet to occur,” said BOFIT adding that the branch’s GVA volume was still by 10% lower than its 2012−2014 peak and by 5% below its 2011 level. The service sector also was among the worst affected, as shops, cafes and restaurants were forced to close during the spring lockdown of 2020. However, the most recent IHS Markit Russia Services PMI has shown a very strong recovery in the last two months
Russia’s banking sector is currently earning its highest profits in five years due to a rebound in economic activity and the parallel growth in corporate profits, which are also at their highest in five years. “The financial sector has been Russia’s fastest-growing category experiencing especially high growth in each of the past three years. Part of this growth can reflect efficiency gains from embracing digital technology,” suggested BOFIT. Last year, the growth in bank lending was accelerated by stimulus efforts on the part of the government and the Central Bank, added the bank. The government’s budget spending increases have also benefited public administration (civil and military administration), which has enjoyed growth for most of the past decade.
Surprisingly, growth in the healthcare field measured in the GVA volume came to a halt last year, noted the bank. “This may reflect disruptions in the provision of other healthcare services due to the struggle with COVID”. In the education branch, developments have been notably uneven with an overall decline for nearly three years. Russia’s industrial production posted an 11,8% growth in May.