Russia’s GDP contraction slows to 4.3% in July

Russia’s GDP contraction slows to 4.3% in July
The pace of Russia's economic contraction is slowing as the economy continues to recover from the shock of sanctions. / bne IntelliNews
By bne IntelliNews September 1, 2022

Russia’s GDP contracted by 4.3% year on year in July 2022, moderating the decline of 4.9% y/y seen in June, according to the latest data from the Ministry of Economic Development. To remind, for 2Q22 overall GDP contracted by 4%.

As followed by bne IntelliNews, GDP forecasts for Russia hit by Western sanctions following the military invasion of Ukraine have been improved across the board. (chart) The International Monetary Fund (IMF) said Russia’s economy is doing better than expected, upgrading its forecast for the contraction anticipated this year to -6% from -8%.

Reportedly, the Ministry of Economic Development is preparing a revised macroeconomic forecast for 2022, upgrading the GDP decline expectations to 4.2% from the previously forecast 7.8% contraction.

In the meantime in July, main support to GDP came from extraction that increased by 0.9% y/y growth in July (versus 1.4% y/y in June), with construction growth accelerating to 6.6% y/y and agriculture posting 0.8% y/y growth.

“The more surprising news from yesterday’s macro statistics was that of fixed capital investments, which delivered 7.8% y/y growth in 1H22, implying 4.1% y/y growth in 2Q22,” BCS Global Markets commented on September 1. Notably, the labour market remained tight with the unemployment rate staying within 4%.

Still, BCS GM warns that a number of industries continue to suffer from unfavourable external environments and high uncertainty domestically. Wholesale and retail trade posted 25.4% y/y and 8.8% y/y contraction in July respectively.

“The recession evolves slower, but risks are high. In July, a number of macro indicators showed improvement in Russia’s economic landscape; however, its concentration in few sectors (one of which is mining) implies high instability and downside risks, especially related to deterioration in the energy sector,” BCS GM commented.