Russia’s Economic Recovery at Risk as Kremlin Pares Stimulus

(Bloomberg) -- Russia’s deputy economy minister is worried the economy’s consumer-led recovery isn’t fully cemented as the government prepares to wind back stimulus.

Curbing state support “is one of the biggest and most serious challenges for the government and budget right now,” Polina Kruchkova said in an interview in Moscow. “We think that we have jump-started growth, but we’ll see.”

President Vladimir Putin has the Russian consumer to thank for pulling the country’s economy from the brink of recession. Consumer demand helped spur a faster-than-expected recovery over the summer in large part because border closures ensured Russians spent money at home. But stimulus measures introduced during a two-month lockdown that started in late March are due to expire before the end of the year, potentially denting spending power.

The Economy Ministry revised up its estimate for this year’s contraction to 3.9% from 4.8% after data showed a jump in economic activity since lockdown measures were lifted in May. It helped that services and small businesses, sectors that were hit hardest by global lockdowns, play a relatively minor role in Russia’s total output.

Fiscal stimulus in Russia was smaller than in other countries -- totaling less than 4% of gross domestic product -- but the support still played a role in allowing the economy to bounce back, Kruchkova said.

Many of the measures, which include delays in tax payments and mortgage subsidies, will expire before the end of the year and the government is already planning to reduce spending and raise taxes in 2021.

The central bank warned last week that the recovery could slow from here and research by Bloomberg Economics suggests that demand is running up against a low ceiling, with consumer activity still lagging.

Second Wave

The recovery path is also clouded by the potential for a second wave of coronavirus after new infections accelerated again earlier this month, taking the total past 1 million. The Kremlin has so far said a new nationwide lockdown isn’t necessary.

Kruchkova, 48, who joined the ministry from the Moscow Mayor’s office in February during a government overhaul, said she and her colleagues were caught off-guard by the quick recovery following an 8% contraction in the second quarter.

But she’s remaining cautious about the outlook going into next year, particularly because consumer demand will have to be followed by a pickup in investment to ensure a sustained recovery.

“Even though we got through the lowest point better than expected, it doesn’t mean that all other stages will go as quickly and smoothly,” Kruchkova said. “There are risks to the recovery and to sustainable growth.”

©2020 Bloomberg L.P.