Temporary factors bring economic activity down in May

Production activity weakened somewhat in May 2019 after a rise in April, while investment activity remained unstable and consumer demand was moderate. This was the result of temporary factors. This is evidenced by the data released in the latest issue of ‘Economy: Facts, Assessments and Comments’.

In May, annual growth slowed in industrial production and transportation due to, among other things, a shrinkage in exports and a larger number of holidays than in May 2018. Estimates suggest that fixed capital investment continued to decline in annual terms. Consumer demand remained moderate on the back of stagnant household income.

Rosstat released 2019 Q1 GDP data which suggests that a slowdown in GDP growth to 0.5% resulted from a decline in gross value added (GVA) or a slowdown in its growth in many sectors.  This was caused by a number of temporary factors, which include demand’s response to the VAT rate hike and a possible correction in inventories. A temporary decrease in real consolidated budget expenditure due to a more pronounced shift in expenditures to the second half of the year, had a negative effect on GVA in a number of sectors.

According to the Bank of Russia forecast, Russia’s economic growth will accelerate in 2019 Q2-Q3 on the back of a rise in consumer activity as the impact of temporary factors is exhausted, and the implementation of national projects intensifies and public investment grows. Forecasts suggest that GDP will grow by 1.0-1.5% in 2019.