‘The restrictions are unlikely to be as severe as in the spring’

Russia’s economy should be able to weather the ravages of a second wave of the coronavirus better than the first, but uncertainty and volatility will remain for the foreseeable future, says The Moscow Times citing economists. Although a sharp spike in new infections is making people worry about the second protracted shutdown, authorities say they are not considering a tough quarantine. Instead of it, Russia is expected to follow a so-called “Swedish model” and impose restrictions on mass gatherings as well as tighten control over social distancing and mask requirements.

According to Renaissance Capital’s Economist Sofya Donets, there is a broad perception that lockdown downsides outweigh the upsides, so a recurrence is unlikely, “The restrictions are unlikely to be as severe as in the spring,” agrees Dmitry Babin, market analyst at BCS Broker. He considers that the impact on the economy will not be as strong as during the first wave.

Meanwhile, Russia’s economy survived the first wave of the crisis better than expected. Although oil price volatility and a nationwide quarantine became a blow to the national budget, the economy lost only 8,5% in the second quarter. Unemployment has increased by modest 2% so far, and inflation is still below the Central Bank’s 4% target despite record-low interest rates. Before the emergence of a second spike, economists spoke of a 4% contraction in 2020, which was much better compared to most advanced economies and many emerging markets. Besides, Russia has solid international reserves and low public debt level.

Donets points out that Russian households have also accumulated an “income overhang” that could support spending during the recovery. Since the beginning of the pandemic, checking accounts have increased by 45% and cash holdings — by 27%. “Domestic consumption is the key. If there are restrictions, then that would hit the economy very hard again,” considers Heli Simola, senior economist at the Bank of Finland’s Institute for Economies in Transition. Meanwhile, consumer behaviour has become more cautious. According to Sberbank’s payment data, spending on services is still by 14% lower than in 2019.

While the recent sharp fall in the value of the ruble, general market volatility and Russia’s traditional reliance on oil are clouding the country’s near-term outlook, economists are also starting to think about the more long-term effects of the virus, for example, on the area of human capital. Experts believe that prolonged school closures may harm a generation of young people. Besides, the impact of the pandemic is aggravating inequality in Russia. According to the Accounts Chamber, 1,4 million Russians have slipped into poverty since the beginning of the pandemic.

Economists also warn that many of the factors that preserved the Russian economy from a deeper recession, such as a low share of small entrepreneurial businesses, the domination of state-owned companies, the government’s conservative economic policy and risk aversion, will resume hindering economic development after the end of the pandemic. As soon as the global economy recovers from the crisis, Russia will restart its battle low GDP growth.