(Russian Central Bank Head Elvira Nabiullina)
(Russian Central Bank Head Elvira Nabiullina)

Russian economy to pick up faster than expected


The Russian economy could recover faster than expected, the country’s Central Bank Head Elvira Nabiullina stated on Friday (Dec. 18). “We expect a stable restart of recovering growth next spring,” Nabiullina told TASS news agency.

“The experience of summer and early fall shows that the recovery can progress rather quickly as the situation normalizes.”

Russian Prime Minister Mikhail Mishustin in October predicted the country’s economic output would shrink by 4% in 2020 as a result of the coronavirus outbreak.

Russia’s gross domestic product contracted 3.4% year-on-year in the third quarter of 2020, easing from an 8.0% contraction in the previous three-month period, which had marked the worst reading in over a decade and compared with a preliminary estimate of a 3.6% decline.

The Russian economy slid into recession this year as lockdown measures hit activity and demand. The hotels & restaurants sector was the biggest driver of the contraction, dropping 25.9% in the third quarter after the second quarter’s 56.9% slump.

Output dropped for wholesale & retail trade; transportation & storage; professional, scientific & technical activities; and education. Mining & quarrying was down 12.3%, utilities output fell 2.6%, while manufacturing production was unchanged,  according to data released by Rosstat.

The Bank of Russia slashed its key interest rate to a record low of 4.25% during its December meeting, saying inflation is developing above its forecast and is expected to lie within the range of 4.6-4.9% at the end of 2020.

This is largely related to the effect of one-off pro-inflationary factors in certain markets and the continuing pass-through of the ruble’s earlier weakening to prices. However, these factors may exert more prolonged upward influence on prices amid the growth in households’ and businesses’ inflation expectations and supply-side restrictions.

Looking ahead, policymakers see annual inflation reaching 3.5-4.0 percent in 2021 and stabilizing close to 4 percent later on.

In spring 2021, the Russian economy is expected to resume its sustainable growth as the coronavirus situation returns to normal. The medium-term economic growth path will be largely influenced by further coronavirus pandemic developments in Russia and across the globe, the nature of the recovery of private demand in the context of potential change in consumer and business behaviour, as well as by the upcoming budget consolidation. Accommodative monetary policy will continue to support the economy throughout the next year.

Given the high heterogeneity of current economic and price movement trends, the central bank also said it will assess the subsequent developments and the existence of a potential for additional key rate reduction.

The Bank of Russia Board of Directors will hold its next key rate review meeting on 12 February 2021.