Russian economic trends: The economy is not what it seems
As the Russian economy reportedly grew by a mere 1.3% in 2019, and this rate of growth looks much lower than the revised 2.5% in 2018, the key question now is not only what has caused this deceleration but also where the economy is heading in 2020.
Rosstat reported that industrial output was up just 1.1% in January, seemingly implying a rather slow start to the year. Manufacturing, however, expanded by a more impressive 3.9% y-o-y, which was on par with the 4Q19 y-o-y growth (also 3.9%). Mining, power generation and supply of heat and energy contracted in January due to extremely warm weather in the European part of Russia and should be treated as a one-off effect. Therefore, it would be too early to speak of a sharp overall deceleration in industry yet. Very strong tax collection in January from the non-oil-and-gas segments of the economy (up 16.7% y-o-y) can also hint that the economic activity was not so bad amid decelerating inflation.
January 2020 statistics looked much better on the consumer side as retail sales were up 2.7% y-o-y versus 2.0% in 4Q19. Consumer payable services increased by 1.9%, and the real wage was up 2.9% y-o-y. Disinflation helped considerably improve the situation on the consumer market. Household consumption could expand by around 2.5% this year as its two major proxies (retail sales and payable services) are set to deliver about the same rate of growth in 2020. Given that household consumption represents around half of GDP by end use it will be the main pillar of economic growth this year.
* Rosstat suddenly decided to switch to fixed 2018 prices instead of the previously used 2016 prices as a benchmark, meaning that the weights of subsectors in industry changed, and this change caused a very strong upward revision of 2018 industrial growth (from 2.9% to 3.5%). Normally the base year is subject to change every five years.
* A rather uneven performance in various sectors of the economy is probably one of the reasons encouraging Rosstat to change the base year early as the nominal structure of Russia’s GDP changed even more.
* The nominal weights of several important segments of the economy changed in just two years from 2016 to 2018 quite significantly. Due to the ongoing adjustment of relative prices, the nominal share of mining increased from 9.6% to 13.2% gross value added. The share of manufacturing also increased quite strongly in nominal prices.
* Going forward, trends in industry (in mining and manufacturing in particular) will have a much greater impact on GDP growth as the combined weight of mining and manufacturing in nominal 2018 prices reached 27.5% of the gross value added (up from 22.63% in 2016).
Now read on...
Register to sample a report