Russia Economic Activity - First Signs of Pain

Economic growth slowed in March but remained fairly positive in 1Q20. Almost all sectors posted slower growth for the month. Retail trade was the exception, as growth accelerated with people rushing to stores ahead of the lockdown. The spread of the coronavirus had a direct impact only on transportation and mining and quarrying.> Economic growth softened in March but remained strong in 1Q20. According to the latest figures, y-o-y growth decelerated in March across almost all sectors compared with February and January (although the statistics for wholesale trade are not yet available). The strong figures from February are less representative, as they were affected by the leap year, but compared with January, sectors related to the production and export of energy, transportation and construction registered a slowdown. Nevertheless, in 1Q20, economic activity remained close to or just slightly below the 4Q19 levels, meaning that GDP growth should come in close to 1.5-2.0% y-o-y.> Industrial production growth slowed in March due to weaker energy demand. Industrial production edged up 0.3% y-o-y in March, down from 3.3% growth in February and 1.1% in January. In 1Q20, it expanded 1.5% y-o-y. The slowdown was mainly due to a deterioration in mining and quarrying (where output fell 1.7% y-o-y, compared with 2.3% growth the month before), as weak external demand caused a drop in gas output (down 14% y-o-y) and coal production (down 9% y-o-y). > Transportation the first industry directly impacted by the coronavirus. The drop in energy exports and quarantine measures imposed across the globe had a negative impact on transportation (both passenger and cargo transport). As a result, it shrank 7.1% y-o-y in March and 4% y-o-y in 1Q20. > Retail sales saw the strongest growth since 2012 due to the demand spike, while incomes remained depressed. Retail sales were up 5.6% y-o-y in March, above the 4.6% y-o-y growth seen in February and by far the strongest growth since mid-2012. They were up by 4.3% y-o-y in 1Q20. Both food and non-food sales accelerated (to 4.7% y-o-y and 6.4%, respectively), as people rushed to shops to buy food and essentials ahead of the lockdown measures, and they were also purchasing non-food products due to fears of ruble depreciation. This effect should prove short-lived, as retail sales appear set to plummet in April due to the quarantine. Real disposable incomes remained under pressure in 1Q20, with the State Statistics Service recording a decline of 0.2% y-o-y, compared with 1.8% y-o-y growth in 4Q19. Unemployment was little changed in March but will clearly start to deteriorate in April (both the official figures and the numbers for the informal economy), meaning that real incomes will likely contract further.