The economy is hit but withstands the pandemic pressure

RUSSIA ECONOMICS - In Brief 19 Jun 2020 by Alexander Kudrin

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Rosstat released preliminary estimates of major economic indicators in May and 5m20 and most of them don’t look too bad given the current circumstances. A few days ago, GKEM Analytica already mentioned that even though manufacturing contracted in May, this contraction was as deep as in most European countries (7.2% y-o-y in May and 1.4% in 5m20). As mining posted a deeper contraction, it could well be the case that domestically oriented segments generally performed relatively better.Data on retail sales confirms this thesis as retail sales in May were up by 6.7% m-o-m on a non-seasonally adjusted basis, i.e. well above seasonal trend. Even though the contraction of retail was still deep in May (19.8% y-o-y) it was much better than in April (- 33.4%). In 5m20 retail sales were down by 6.1% y-o-y. According to some preliminary numbers on bank transactions it looks as though retail sales have bounced back in June further as the lockdown measures have been significantly eased. It can well be expected that retail sales and household consumption will continue catching up in the remaining months of the year.Agriculture in May and 5m20 was up by 3.2% and 3.0% y-o-y. Construction was down by a mere 3.1% and 0.7% y-o-y over the same periods. Freight transportation was down in May by 9.5% and in 5m20 by 5.4% y-o-y. These numbers do not yet alter our GDP growth forecast, even its upper boundary, which is -4.2%.Indeed, recent CBR's decision to cut the key policy rate by 100bp to 4.5% looks timely and is expected to be quite supportive for the economy as it will help to gradually bring down interest rates on all segments of money markets. On top of that, the regulator reiterated its...