Russia's GDP catches up with pre-COVID level

Russia's GDP catches up with pre-COVID level
By bne IntelliNews July 30, 2021

Russia's GDP increased by 4.6% year on year in 1H21, according to the estimates of the Ministry of Economic Development. In June 2021 alone, GDP was up by 8.5% y/y, in 2Q21 by 10.1% y/y. 

Notably, in 2Q21 GDP grew by 1.5% compared to the same quarter of pre-crisis 2019, thus marking full recovery mostly driven by domestic demand, the ministry commented.

As reported by bne IntelliNews, as the economy continued a strong bounceback, this month the ministry upgraded its growth forecast for 2021 to 3.8% from 2.8%, and does not expect economic growth to go below 3% annually post the coronavirus (COVID-19) crisis. Most recently President Vladimir Putin has set a goal of 4% annual GDP growth.

Russia's economy had a mild recession in 2020 (3% contraction) and has bounced back in the first two quarters of this year much more strongly than expected.

"As the economy passes the contraction gap, we expect the momentum to wane in 2H21," Sova Capital commented on July 29. The analysts warn that consumer activity, driven by excess savings and a lack of outbound tourism, should start to wane in 2H21, as should the lower credit demand resulting from higher interest rates. 

However, the support for consumption could come from stronger incomes, which still have room to improve versus pre-COVID-19 levels (disposable incomes are still 0.8% below 2Q19 levels). 

"While recent prints suggest upside risks to our 2021 growth forecast of 3.4% y/y, the 2H21 dynamics could mean greater downside risks depending on the duration of the COVID-19 pandemic and disruptions in supply chains," Sova suggests.