COVID-19, headwinds of inflation threaten Russia’s economic recovery
Russia’s economy has recovered vigorously in recent months, a boon to authorities ahead of the election, but a sharp rise in COVID-19 cases and the need to raise interest rates to combat it. inflation challenge growth.
After declining 3% in 2020, its sharpest contraction in 11 years, the Russian economy was on the mend thanks to a rebound in consumer demand and high prices for oil, its main export, resulting in a series of improvements in its economic outlook.
The central bank expects the economy to grow 3-4% this year, despite its three rate hikes aimed at curbing stubbornly high inflation. But a fourth rate hike expected, to at least 6% in July, and the outlook for even more expensive loans could weigh on business activity.
The economy hit its pre-pandemic level in the middle of this year when Russia was hit by a new wave of COVID-19 cases blamed on the highly infectious new delta variant.
“The foundations are in place for the recovery to continue into the third quarter, but the latest wave of the virus and the possibility of further tightening of containment measures pose a key threat,” research firm Capital Economics said in a note. After offering the free vaccination at the end of 2020 and almost returning to normal life in 2021, with cafes and gyms open as usual and many people working in offices, Moscow reported a record daily increase of 9,120 cases of COVID-19 on June 19.
The city of more than 12 million people responded with the compulsory vaccination of a large group of citizens. This model was adopted by other regions which also imposed broader restrictions, sparking widespread public discontent ahead of the parliamentary elections in September.
In the second quarter of 2020, when lockdowns and other restrictions related to COVID-19 were in place, real disposable income in Russia fell the most in 20 years and the economy shrank 9.6%.
The capital has also launched a QR code system, where patrons of cafes and restaurants must present a QR code showing they have been vaccinated, had an infection indicating immunity, or recently tested negative before being served. .
On the day QR codes went live, an Italian cafe in central Moscow saw only one customer with a code while the rest of the orders were for delivery, with revenues dropping to around a sixth from previous levels, cafe manager Olga told Reuters.
As queues for vaccination centers across Russia have increased recently, many people are looking for ways to avoid the vaccine.
Larisa, 49, who sells shoes at a shopping mall in suburban Moscow, said she was afraid of the vaccination due to kidney problems. At first, she decided to buy a fake vaccination certificate, but after the authorities threatened to punish her with prison terms, she decided to quit her job.
“A combination of high inflation, restrictive monetary and fiscal policies, in a context of worsening epidemiological situation, still high geopolitical risks and the threat of increased risk aversion could stifle the economic recovery in 2H21, in especially in the consumer segment, ”BCS Brokerage said.