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Russian economy shows its resilience to shocks

According to the second estimate of 2020 GDP published by the Federal State Statistics Service (Rosstat) on April 1st, the economy contracted by 3% last year.

The second GDP estimate for 2020 represents a slight improvement from the 3.1% decline cited in Rosstat’s first estimate. Russia’s economic performance during the coronavirus pandemic compares favourably with those of many other advanced economies. The global economy is estimated to have declined by 3.9% last year and hence, for the first time in the post-Soviet era, Russia has outperformed the global economy during a worldwide recession. Russia’s economic performance also exceeded the expectations of most forecasters and the Russian authorities. In September 2020, the country’s economic development ministry, which tends to err on the side of optimism, projected that the economy would contract by 3.9%.

The unexpected resilience of Russia’s economy during the crisis provides some evidence of the strength of the macroeconomic framework that has been developed over the past decade. The finance ministry’s budget rule limited the impact of the sharp fall in oil prices at the start of the coronavirus pandemic. Meanwhile, improvements in the credibility of the Central Bank of Russia’s monetary framework allowed the government to implement a relatively large fiscal stimulus package without risking a loss of investor confidence or higher borrowing costs. Analysis by the Development Centre at Moscow’s Higher School of Economics suggests that additional government spending to support the economy reduced the overall contraction in GDP by 2-3 percentage points.

The comparatively small decline in headline GDP is also in part a function of import compression and therefore does not fully capture the impact on household welfare. While exports fell by 4.3% year on year in 2020, imports fell by 12% owing to a sharp slump in household consumption, which declined by 8.6%. However, a relatively strong rebound in household consumption appears likely in 2021, assuming that a further significant wave of the coronavirus is avoided. Rosstat estimates that real household incomes declined by 3.5% in 2020. This suggests that more than half of the fall in household consumption was a function of social-distancing measures to control the spread of the coronavirus, rather than a decline in spending power.

We continue to forecast that the economy will grow by 2.7% in 2021 and by 2.1% in 2022.

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