Russian GDP growth slowed to 1.3% y/y in the third quarter of 2018, down from 1.9% y/y growth the previous quarter due to the high base effect from last year’s record breaking harvest, according to preliminary data from Rosstat released on November 13.

Rosstat’s results confirm previously published calculations by the Ministry of Economic Development. The Ministry of Economic Development explained the slowdown in economic growth in the third quarter as due to the comparison with a high base of agricultural production last year. This year’s harvest is expected to be a decent 106mn tonnes of grain, but will be nowhere near the all time high harvest of 133mn tonnes of grain brought in in 2017. The difference cost 0.5pp of GDP growth in the national statistics, according to the economics ministry.

Nevertheless, even without the base affect, Russia’s economy continues to underperform and the economics ministry has downgraded its forecast twice this year already from 2.1% at the start of the year to 1.8% now.

In general, in the first nine months of 2018, the Ministry of Economic Development estimated the growth of the economy at 1.6%. In September and August, GDP grew at an annualised rate of 1.1%.

The basic version of the macro-forecast by the Ministry of Economic Development suggests GDP growth in 2018 by 1.8% after 1.55% in 2017. Economic Development Minister Maxim Oreshkin said that economic growth may deviate from the official forecast even further, and called the range between 1.5% and 2%. The Central Bank of Russia (CBR) believes that the Russian economy cannot grow faster than 1.5-2% per year in the medium term.

The international rating agency S&P Global Ratings expects the growth of the Russian economy in 2018–2021 will be no more than 1.7–1.8%, unless deep structural reforms are undertaken.

“We predict a relatively modest growth in Russia's GDP in 2018–2021 — at the level of 1.7-1.8%, while the government predicts that GDP growth may reach 3% in 2021 due to the investment programme,” the ratings agency said in a report entitled “How the Russian investment program can affect the economic growth and creditworthiness of companies” released on November 13. 

The agency expects the government to take macroeconomic stability as its priority over boosting growth and that it will adhere to strict budget rules and, as a result, limit the growth potential of the economy.

The growth rate of investment in the private sector will depend on progress in structural reforms, including the reform of the judicial system, as well as progress in privatisation and demonopolisation, the agency said. “We consider the prospects of these processes limited, taking into account the low efficiency of reforms in the past,” analysts conclude. “As a result, we believe that GDP growth rates will be lower than the level predicted by the Russian government, and we do not expect a significant increase in capital expenditures of the corporate sector.”