Challenging external environment to limit Russia’s economic growth in 2020

25 March 2020

Moscow, 25 March 2020. In 2019, Russia’s economic growth slowed down to 1.3% from 2.5% the year before. EDB analysts note that the key factor behind this was the decline in net exports driven by weaker external demand. This suggestion is presented in The Macroeconomic Review for Russia prepared by the Directorate for Research at the Eurasian Development Bank (EDB). The Bank’s experts point out that Russia’s economic output began to recover in the second half of the year, supported by the softening of fiscal and monetary policies.

The EDB forecasts Russia’s GDP to grow by 1.3% in 2020, as in the previous year. The spread of coronavirus and sliding oil prices will restrain economic activity. This will result, in the first place, in weaker external demand and domestic investment, as well as disruptions in production chains. National projects, which will enter their active phase, and measures to stimulate population incomes are expected to support the economy. In 2021 and 2022, with the stabilisation of the global economic situation and commodity markets and the implementation of internal structural transformations, GDP growth rates are projected to reach 1.9% a year.

The review notes that pressure on the Russian ruble increased in early 2020 due to falling oil prices and amid fears that coronavirus will affect the global economy. EDB analysts forecast that these factors will persist in the coming months and the exchange rate of the national currency against the US dollar will remain around the current levels. In the future, as hydrocarbon prices gradually recover and the global economy stabilises, the ruble is projected to partially win back the positions it has lost.

Aleksei Kuznetsov, Head of the Economic Analysis Department at the EDB, believes that the weakening of the national currency will have an inflationary impact this year. At the same time, he expects consumer price growth to remain close to the Bank of Russia’s target as the exchange rate’s effect on inflation has declined in recent years and its current level is low.

The review suggests that the prevailing short-term risks are associated with restrained economic activity. The main reason for this is that it is currently difficult to predict the impact coronavirus will have on the global economy as the scale of the pandemic and its duration remain uncertain. EDB analysts assume that the negative effects will concentrate on the demand side and will not impact significantly the production potential. Otherwise, the consequences for the Russian economy may occur to be longer and stronger. It is also probable that oil prices will remain low for a longer period than projected by the Bank’s base-case scenario and that this factor will affect the expectations of economic agents and investment demand.

Additional Information:

The Eurasian Development Bank (EDB) is an international financial institution founded by Russia and Kazakhstan in January 2006 with the mission to facilitate the development of market economies, sustainable economic growth, and the expansion of mutual trade and other economic ties in its member states. The EDB's charter capital totals US $7 billion. The member states of the Bank are the Republic of Armenia, the Republic of Belarus, the Republic of Kazakhstan, the Kyrgyz Republic, the Russian Federation, and the Republic of Tajikistan.

The EDB Media Centre:

Alexander Savelyev +7 (985) 765 23 59 (Moscow)     

Azima Sapargaliyeva +7 (777) 750 00 08 (Almaty)

Sergey Gorbachev +7 (916) 727 22 00 (Moscow)

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