No light at the end of the tunnel

RUSSIA ECONOMICS - In Brief 04 Mar 2022 by Alexander Kudrin

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At this stage, it is hard, if not impossible, to envisage more or less accurately what may happen this year with the Russian economy, as even while writing a relatively short note, the news keeps coming one after another. A growing number of foreign companies suspend their trade operations with Russia. Many companies who set up their production base in the country are either willing to exit, reduce, or suspend operations. It is not clear if any re-orientation to Asia could be feasible at all – but not in the short term. The impact of Russia’s military operation in Ukraine appears to be too special as the economy will suffer more than during the initial pandemic shock in 2Q20. The effect will last much longer. Therefore, recently published economic statistics for January, which were quite encouraging, now mean very little.The fact that Russia’s industrial output in January was up by 8.6% y-o-y and the output of the five basic sectors (industry, agriculture, transport, construction, trade) increased by 8.5%, say little about future trends. Retail trade was up by 3.6% y-o-y, construction grew by a mere 1.6% y-o-y, transport – by 7.7% y-o-y. Even these data point to some deceleration in 2022, though from unexpectedly high GDP growth in 2021 (4.7%). At a glance, Russia’s recession in 2021 is going to be deep. It could be well the case that eventually, retail trade growth will move into negative territory in 2022 as a whole as rapidly rising inflation will trim real growth numbers.Meanwhile, inflation reached 0.45% and 0.99% during the seven days ending on February 25 and MTD. In the weeks that follow, inflation will accelerate amid panic buying and the collapsed value of th...