The latest East Office quarterly report on the Russian economy

Key takeaways
Recent events in 1Q20 for the Russian economy

 COVID-19 infections started to rise strongly also in Russia and by end of April there were already
over 150 000 confirmed cases and Moscow went into lockdown. Especially Moscow mayor Sobyanin
has stepped to the fore in managing the crisis, while president Putin has remained surprisingly invisible and
at the background.
 GDP growth in 1Q20 estimated at 1.8 %. Real GDP growth remained surprisingly strong in Jan-March led
by strong retail and manufacturing. Only services sector contracted in 1Q20 and declined by -4.4 % y/y.
 Industrial production growth halted in March. Favourable conditions still present in Jan-Feb resulting in
a 1.5 % growth in industry for 1Q20. Virus restriction started to affect to through decreasing demand and
industrial production halted to 0.3 % growth in March. Especially manufacturing upheld economic activity
while extractive induties were hit by decline oil prices.
 Rouble depreciated due to the oil price war and low external demand caused by corona virus.
Following a steep decline of oil prices by -30 % due to an oil price war between Saudi-Arabia and Russia,
RUR lost over 20 % of its value. In April, following strong FX interventions by the state, the RUR gained
back 10 % despite continued fall by oil prices.
 Inflation remained modest at 2.5 % despite a weaker currency. Inflation is expected to accelerate in
2020 due to constrains in production caused by the virus restrictions and a weak RUR.
 CBR lowered its key rate to record low of 5.5 % to boost lending. The cut in the key rate is probably not
enough to increase economic activity given the severity of the COVID-19 crisis but further cuts could
threaten the RUR to weaken further.
 Sentiments in services and manufacturing are at a historically low levels. In April, the Purchasing
Managers Index (PMI) fell to its lowest level in record and manufacturing PMI dropped to its lowest since
 President’s approval rating hits rock bottom. Putin’s approval rating decreased to 59 % in April
decreased to its lowest level as president.
 Real waged showed strong growth in 1Q20 that upheld strong retail figures. Real disposable incomes
at the same time contracted by -0.2 y/y.
 Unemployment could nearly double in 2020. Ministry of Employment projects that there will be 6 million
unemployment from Russia, when in 1Q20 there were 3.5 million.