IMF forecast sees sharp contraction in Russian economy this year followed by sluggish recovery next year

The latest IMF World Economic Outlook, released last week, forecasts a sharp three-percent contraction in global GDP this year followed by a strong recovery of 5.8 percent next year. The Russian economy has been hit hard by the corona pandemic shutdown of the economy and the collapse in crude oil prices. Russian GDP is expected to fall this year by 5.5 % and then grow by just 3.5 % next year. As a result, overall GDP will be less in 2021 than in 2018.

While most forecasting institutions expect a contraction in Russian GDP this year, the forecast figures depend to a large extent on how long Russia is assumed to keep relatively strict lockdown measures in place. For example, the IMF base scenario assumes that most COVID-19-related restrictions will be lifted after the second quarter, and that recovery from the pandemic will begin already in the second half of this year. In Russia’s case, also assumptions about oil price trends have a huge impact on the growth outlook.

Europe’s other emerging economies, including Ukraine and Turkey, should also experience similar economic weakness this year. Notably, the Turkish economy should bounce back strongly next year. The IMF expects economic trends in Asia to be better than elsewhere this year, and that many emerging economies in the region will manage positive growth numbers.

Short-horizon developments in the Russian economy, as elsewhere, are monitored by such daily and weekly indicators as traffic volumes, energy consumption as well as retail sales. Restrictive measures in the early weeks of the lockdown, for example, reduced overall energy consumption by 3–5 % y-o-y. By some estimates, a change of this magnitude implies a drop of roughly 10 % of GDP. Payment card data reported by Alfa Bank show that household consumption in the first two weeks of April declined by about 30 % from the end of March.

Russia had been enjoying relatively strong economic growth in the months before the COVID-19 pandemic. Industrial output was up 1.5 % y-o-y in in the first quarter (up 0.3 % in March), with manufacturing up by 3.8 % y-o-y (2.6 % in March).

GDP forecasts published in April

Sources: International Monetary Fund, World Bank, Asian Development Bank and BOFIT.