Russia Suffers Smaller Economic Slump Than Peers in 2020

(Bloomberg) -- Russia suffered a smaller contraction than most major economies in 2020 after the government opted not to reimpose a lockdown in the second half of the year.

Gross domestic product contracted 3.1% last year, the biggest slump since 2009, Russia's Federal Statistics Service said Monday. The contraction was softer than expected by economists, who forecast a 3.7% drop in a Bloomberg survey. The Economy Ministry had projected a decrease of 3.9%.

The economy is expected to grow this year, according to a separate Bloomberg survey, but economists warn that may be compromised by a slower than planned rollout of the Covid-19 vaccine.

Most of the economic hit came in the first half, when the government imposed a strict lockdown and global oil demand slumped due to travel restrictions. Later in the year most parts of the economy were left open even as coronavirus virus cases soared. The country is on track for its deadliest year in more than a decade.

What Our Economists Say:

“Russia's economy looks resilient, but GDP doesn't capture the full cost of the pandemic. A long and brutal second wave has taken a tremendous human toll.”

--Scott Johnson, Bloomberg Economics. Read his full note here.

Russia's 2020 contraction is set to be about half that of the euro area economy, which is forecast to shrink 7.3%. The statistics agency revised up economic growth for 2019 and 2018 in late December, citing updated data for those periods, and is yet to publish data on the fourth quarter of last year.

The price of oil, Russia's main export earner, has risen by more than 40% since the beginning of November and the economy is forecast to grow about 3% in 2021.

Russia is aiming to vaccinate at least 60% of the population by the middle of the year with the home-grown Sputnik V vaccine, but the authorities are struggling to persuade enough people to get inoculated. So far, 320,000 people in the capital have begun vaccinations, far below other comparable cities.

“The pace of vaccinations could be one of the most important drivers for the resumption of economic activity,” Artem Zaigrin, an economist at Sova Capital in Moscow, wrote in a research note. “A more aggressive fiscal consolidation and additional waves of COVID-19 if herd immunity is not reached could lead to downside risks.”

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