The economy may have bottomed in April-May

RUSSIA ECONOMICS - In Brief 16 Jun 2020 by Alexander Kudrin

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Rosstat reported that industrial production decreased in May and 5m20 by 9.6% and 2.4% y-o-y. In the mining sector respective figures stood at -13.5% and -3.4% y-o-y, while in manufacturing it was not that deep (-7.2% and -1.4% y-o-y respectively). Note that in April contraction in manufacturing was deeper (-10.0% y-o-y). As global demand for energy resources fell, the Russian mining sector just followed the global trend, as oil and gas extraction decreased in April by 14.4% y-o-y (and by 2.9% y-o-y in 5m20). Any rebound in the extraction of oil and gas is unlikely this year. Unsurprisingly oil-and-gas revenues of the federal budget dropped significantly both in April and May.Overall, industrial output contracted in Russia not as much as in the EU. In Europe, respective figures in March and April were -10.9% and -17.3% y-o-y. This fall affected Russia’s export-oriented sectors, such as metallurgy, which contracted y-o-y by 10.0% in April and 3.2% 5m20. Russia's food production continues to perform relatively well, as it was up y-o-y by 1.5% in April and by 6.9% in 5m20. The chemical industry continued to grow by 4.4% and 5.4% y-o-y over the same periods. The pharmaceutical segment delivered double-digit growth. Most other segments (with rare exemptions) contracted. April's industrial statistics indicate that manufacturing is likely to reach the bottom in 2Q20 and deliver an upturn in 2H20.Even though the non-oil-and-gas revenues of the federal budget decreased in May by around 16.0%, this figure didn’t look that low, as some businesses were able to use tax holidays and delay tax payments. Note that VAT is the most important tax in Russia and rather “moderate” (given th...