The Russian economy has slowed to 0.5% - this is worse than the most pessimistic forecasts

In the first quarter, Russian GDP in annual terms grew by only 0.5% , according to preliminary data from Rosstat. This is the lowest rate since the fourth quarter of 2017, “the economy is on the verge of a recession,” Kirill Tremasov, an economist and director of the analytical department at Loko-invest, commented on his telegram channel. For comparison: in the last quarter of 2018, the economy, according to Rosstat, grew by 2.7%. If the department does not clarify its data in June, the beginning of 2019 will turn out to be worse than the most pessimistic expectations, writes . Vedomosti

Worse than predicted. The slowdown in the economy was expected, but not as much. The Ministry of Economic Development predicted growth by 0.8%, the Central Bank - by 1-1.5%, the Bloomberg consensus forecast was 1.2%, the publication lists.

Tremasov believes that in the first quarter the Russian economy could have experienced "the most serious quarterly failure since the 2008-2009 crisis." The decline in annual GDP growth from 2.7% in the fourth quarter to 0.5% in the first quarter means that the economy could have contracted by about 1.6% in the beginning relative to the previous quarter, seasonally adjusted, he writes : the worst quarterly failure of all time since the 2008-2009 crisis. Neither the oil crash in 2014 nor the sanctions could cause the same kind of economic failure that we created for ourselves by raising taxes.”

Causes. The Ministry of Economic Development links the sharp drop in demand to weak domestic demand in the face of VAT increases. The Central Bank also wrote about the slowdown in demand against the backdrop of falling incomes of the population: in the first quarter of 2019, they collapsed immediately by 2.3% due to the stagnation of wages, which began after last year's increase in state employees. The weakness in demand is confirmed by the slowdown in inflation, despite the increase in VAT: the Central Bank predicted that it could accelerate to 5.5-6% in the spring, but after the March peak of 5.3%, inflation is declining.

Another reason is a sharp drop (by 7.4%) in wholesale trade, Deputy Finance Minister Vladimir Kolychev told Interfax. This may be due to the fact that companies, preparing for a VAT increase, could stock up on necessary goods in advance at the end of last year, Dmitry Polevoy, chief economist at the Russian Direct Investment Fund, commented to Vedomosti.
Other reasons could also affect the growth of the economy - from a warm winter and a decrease in gas exports and electricity consumption to a fall in state defense orders, economists list.

What will happen next. often lately Rosstat may still revise its estimate - this has happened . For example, the estimate of GDP growth for the first quarter of last year was eventually raised from 1.3% to 1.9%. And at the end of 2018, Rosstat unexpectedly announced the growth of Russian GDP by 2.3%, greatly exceeding the expectations of economists.

“ This figure [2.3%] surprised us,” he admitted in a recent interview with the Russian Norms! EBRD Chief Economist Sergey Guriev. - I will say right away that our forecast was always in the range of 1.5-2%. The official forecast was also in the range of 1.5-2%. And then, it seems to me, the Russian authorities were surprised when they were told that the growth was 2.3% . At the same time, they did not change the forecast for 2019, which surprised me even more. If the explanation for the super-fast growth in 2018 is that a large investment project was suddenly completed ( we are talking about the Yamal LNG project worth $ 27 billion - The Bell ), then the closure of this project should have been planned in the future, which means that the pace growth should decrease. If this project happened suddenly not in 2019, but in 2018, then the growth forecast for the next year should decrease. But he hasn't changed. Therefore, we still do not understand what exactly happened in 2018.”

Economists are not in a hurry to change their forecasts for the year - so far they provide for growth of 1.2-1.7%. In their opinion, by the end of the year the economy will be supported by the growth of government spending in connection with national projects - the total investment in them over the next five years should amount to almost 26 trillion rubles.

“Our forecast for economic growth, and this is part of the consensus (the Russian authorities and the IMF have the same forecast), is that the Russian economy will grow at a rate of 1.5-2% if there are no reforms. And the second part of this consensus is that there will be no reforms,” Guriev said in the same interview .