Russian economic growth slows down in Q3 2018

The Russian economic growth continues to be modest. The GDP of Russia grew 1.3 percent year-on-year in the third quarter of 2018, a deceleration from the second quarter’s 1.9 percent growth and below consensus expectations of a growth of 1.4 percent.

In January-September 2018 period, the Russian economy has expanded 1.5 percent. For the official authorities’ forecast of 1.8 percent growth for 2018 to come true, the Russian economy should grow 2.5 percent year-on-year in the fourth quarter, which is unlikely for the time being.

“We thus keep our GDP forecast unchanged at 1.6 percent in 2018 but signal some downside risks to this forecast”, noted Nordea Bank in a research report.

The deceleration in the third quarter was possibly due to a weakening of investment dynamics. No official figure is available yet for the third quarter investment, but the trend in the first and second quarters was hinting at a slowdown.

Uncertainty regarding sanctions and RUB softening have possibly been drag on firms’ investment plans in the third quarter. The deceleration in investment was not compensated enough by increasing consumer demand. The latter rose 2.7 percent year-on-year in the third quarter. The impact of World Cup was quite moderate. The retail sales growth accelerated to 3.3 percent year0on-year June but then returned to 2.7 percent or lower.

Until recently, additional sanctions clarity was expected by the end of November. Nevertheless, some of the last declarations from the U.S. indicate that in fact there is no evident timeline for sanctions implementation.

Leading indicators also indicate towards an unstable nature of economic growth. PMI remained below 50 points for four months. Consumer sentiment remains below the May levels. Business sentiment levels are also modest. Freight turnover has indicated a deceleration in August-September returning to 1.9 percent year-on-year growth.

“All in all the economy seems to be in a wait-and-see mode looking for some clues as to the geopolitical developments and progress on approval of infrastructure projects scheduled by presidential May decree”, stated Nordea Bank.