Business activity declines in March as expected

The mining and transport sectors emerged as key contributors to the deterioration in production activity. The scarcity of available gas storage facilities combined with warm weather in Europe to cause another reduction in gas production. Shrinking exports of coal and ferrous metals were major drivers behind a drop in railway cargo turnover. Moreover, as the ruble weakened and industrial coronavirus-related curbs were put in place across the globe, imports of spare parts were becoming increasingly inaccessible. As a result, there was a drop in domestically produced investment goods and investment activity.

At the same time, consumer spending remained high. In the run-up to the lockdown, non-perishable and personal hygiene products registered a surge in demand. Growth was also recorded in sales of household appliances, which was driven by a temporary rise in inflation expectations on the back of the weaker ruble. Annual growth rates in the retail sector reached their all-time highs for the period since 2012.

The Bank of Russia estimates annual GDP growth at 1.5–2.0% for 2020 Q1; it will however dip into negative territory as early as Q2 on the back of the tightening of national anti-pandemic restrictions. The time the economy will take to return to normalcy will primarily ride on how soon coronavirus-linked restrictions are relaxed. According to the Bank of Russia’s forecast, GDP might drop 4–6% in 2020.