GDP growth accelerated in 3Q (+1.7% y-o-y; +0.9 in 2Q)

RUSSIA ENERGY / FINANCE - In Brief 14 Nov 2019 by Marcel Salikhov

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Rosstat published its first preliminary estimate of 3Q19 GDP growth. According to Rosstat, the GDP increased by 1.7% y-o-y after +0.9% in 2Q19 and +0.5% in 1Q. It’s an acceleration as compared to 1Н19, which was extremely weak (+0.7% y-o-y). But overall economic activity stays relatively weak. We believe that the main factors behind recent economic revival are connected to growth in household demand. In 3Q19 real household incomes surprisingly surged +3.0% y-o-y after a long term decline. While there are certain reasons to doubt such a rosy estimate, some recovery of household demand took place VAT tax shock in the beginning of the year. Based on 2Q demand-side data (3Q estimates will be published roughly in 6 weeks) and available monthly data, another significant contribution came from positive changes in inventories while growth in fixed investment was weak (+1.0% y-o-y in 2Q). Declining exports contributed negatively to GDP growth. Chart 1. GDP growth - contribution from demand side, 1Q13 - 3Q19 Source: Rosstat, IEF estimatesFundamentally revival of household demand is linked to a growth in government expenditures as national projects have finally started to kick in. One of the most successful national projects (in terms of the use of allocated funds) is the “Demography” project. Its main expenditures are increases in child benefits. So it’s a direct social transfer. We think that it’s one of the reasons that explain increases in real incomes. In 3Q19, expenditures of the federal budget increased 13.1% y-o-y (+23% y-o-y in October 2019). Even a small deficit of the federal budget (-15 bln RUB) was registered last month, according to preliminary estimates of Minfin. ...