Riding the wave of the pandemic: what happened in the Russian economy in 2020

In 2020, Russia, like most countries in the world, faced one of the biggest shocks of recent decades - the coronavirus pandemic.

The rapid spread of the disease and forced quarantine measures led to the temporary closure of borders and the suspension of a number of enterprises.

At the same time, the collapse in oil prices that occurred in the spring had a negative impact on federal budget revenues and the dynamics of the national currency.

However, the consequences of the pandemic did not cause fundamental negative shifts in the Russian economy.

This was announced on December 25 by the head of the Ministry of Economic Development Maxim Reshetnikov.

According to him, the current state of affairs is only "a deviation, not a departure from the trajectory of sustainable growth."

“The crisis has not acquired a systemic character.

It was possible to prevent its impact on the backbone industries and enterprises.

At the end of 11 months of 2020, production in the manufacturing industry reached almost the level of last year, in agriculture we see an increase of + 1.5%, the pace of construction has also stabilized, "the minister said at a government hour in the Federation Council.

According to him, by the end of 2020, Russia's GDP will decline by about 3.8%.

At the same time, the economic downturn will not be as widespread as in a number of other states.

For example, the International Monetary Fund (IMF) predicts a decline in US GDP in the outgoing year by 4.3%, Japan - by 5.3%, and the eurozone countries - by 8.3%.

“It is safe to say that we have met these problems with dignity and, in part, even, perhaps, better than in other countries of the world, which are rightfully proud of both the stability of their economies and the development of their social services and health systems,” said the President of Russia Vladimir Putin at the annual press conference on December 17.

During the pandemic, the main factors of macroeconomic stability in Russia were low public debt and a high level of reserves.

This was previously stated by the presidential press secretary Dmitry Peskov.

Moreover, in part, the depth of the recession in Russia was limited by the structural features of the economy.

This point of view in a conversation with RT was expressed by Georgy Ostapkovich, director of the Center for Market Research at the Institute for Statistical Studies and Economics of Knowledge at the Higher School of Economics.

As the expert explained, the service sector, along with small and medium-sized enterprises (SMEs), was hit hardest by the pandemic and lockdowns.

At the same time, if in large developed countries the share of SMEs in the economy often exceeds 60%, then in Russia it is no more than 22%, so the impact of the coronavirus turned out to be weaker.

Oleg Shibanov, director of the Skolkovo-NES financial center, adheres to a similar assessment.

“In general, it is worth noting a combination of circumstances.

In addition to the fact that in Russia the share of small and medium-sized businesses, which turned out to be more affected by the recession, is lower, we have a good macro environment, which allowed the Ministry of Finance to lower rates and borrow in the market.

Therefore, the reaction to the problems was quite successful, ”the economist noted.

To help the economy

It is curious that in the spring many experts and government officials estimated the probable reduction of Russia's GDP at about 5-6% by the end of the year.

As experts now explain, it was mainly possible to contain the economic recession due to measures of financial assistance to business and the population.

“If the government had not provided additional support measures, the recession would have been much deeper.

Instead of the currently expected 3.8%, the country's GDP could lose about 6.5%, "said Nikita Maslennikov, head of the Finance and Economy department at the Institute of Contemporary Development in an interview with RT.

The key anti-crisis measures of the authorities were: direct payments to families with children and subsidies to the affected sectors of the economy, credit holidays, grants and soft loans to enterprises to pay salaries to employees, as well as tax deferrals and exemptions for companies and entrepreneurs.

At the same time, the state launched a preferential mortgage program at 6.5% per annum and a cashback program for trips across Russia to support tourism.

“In general, 4.6 trillion rubles were allocated to support citizens and industry, to fight the pandemic.

For us, this is unprecedented money, it is 4.5% of the country's GDP, ”said Vladimir Putin.

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According to the president, the consequences of the pandemic also provoked a noticeable increase in unemployment in Russia.

According to Rosstat, from January to August, the corresponding figure rose from 4.7% to 6.4%.

The value was the highest since 2012.

However, in the autumn the situation on the labor market began to stabilize.

In September, unemployment fell to 6.3%, and in November it was 6.1%.

At the same time, a full recovery of the employment sector can occur as early as 2021, Vladimir Putin is sure.

“Everything we do to support the economy, to support the affected industries, is directly related to the maintenance of jobs,” the head of state added.

Favorable percentage

Note that in the context of a pandemic, the Bank of Russia continued to reduce the key rate in 2020 and lowered it from 6.25 to 4.25% per annum.

The indicator became the lowest in the entire post-Soviet period.

“Reducing the Central Bank rate to a record low is a very important maneuver.

He helped both businesses and the population.

Money became cheaper, and, naturally, people and businesses began to take available funds, use them for investments, for innovation and for increasing their well-being.

All this together with the help from the state helped to mitigate the damage to the economy, ”explained Georgy Ostapkovich.

Traditionally, banks monitor changes in the Central Bank's key rate and, on the basis of decisions made by the regulator, independently determine the level of long-term lending rates, including mortgage rates.

Thus, as a result of the policy of the Central Bank and the simultaneous launch of the preferential mortgage program from the beginning of 2020, the average interest on housing loans in Russia dropped from 9 to 7.3% per annum.

The sharp decline in rates has led to a boom in demand for home purchases.

According to the DOM.RF forecast, by the end of 2020, over 1.6 million mortgage loans for 3.8-4 trillion rubles can be issued in Russia.

The value will become the maximum for the entire observation time.

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In addition to the cheapening of loans, the actions of the Central Bank led to a decrease in the profitability of bank deposits.

So, since the beginning of the year, the maximum rate on deposits in the ten largest banks dropped from 6 to 4.48% per annum.

Against this background, Russians began to buy securities more often to save money.

According to the Moscow Exchange, from January to November 2020, 4.2 million people opened brokerage accounts - more than in all previous years.

“Citizens behaved quite rationally and began to transfer their funds to the financial market.

The total number of private investors on the Moscow Exchange has exceeded 8 million. This can be described as a kind of new financial reality in 2020, which has developed under the influence of the Central Bank's policy, ”said Nikita Maslennikov.

Monetary fluctuations

Massive lockdowns and the spring collapse in oil prices led to noticeable fluctuations in the Russian foreign exchange market in 2020.

So, from January to December, the dollar and euro rates on the Moscow Exchange increased from 62 and 69 rubles to 74 and 90 rubles, respectively.

Moreover, during the year, the indicators temporarily rose above 81 and 94 rubles - for the first time since 2016.

“Tough quarantine measures have led to a virtually complete halt of air and ground communications between states.

The movement of labor was also hampered, and many factories around the world stopped.

It is not surprising that investors panicked and began to withdraw money from the so-called risky assets, which include the ruble, "explained Artyom Tuzov, executive director of the capital market department at Univer Capital, in a conversation with RT.

In part, the actions of the Bank of Russia helped contain the weakening of the national currency.

To stabilize the ruble exchange rate, on March 10, the Central Bank began a proactive sale of foreign currency in the domestic market.

Thus, the regulator artificially increases the demand for rubles.

In total, as part of the initiative, the Bank of Russia sold foreign currency on the domestic market for a total amount of over 1.6 trillion rubles.

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It is noteworthy that the depreciation of the ruble did not lead to a significant jump in consumer prices in the country.

Thus, for most of the year, the inflation rate in Russia remained below the Bank of Russia's target of 4%.

A noticeable rise in the price of a number of goods occurred only towards the end of the year and was largely due to the general rise in world prices for these products.

Ilya Bereznyuk, managing partner of Agro & Food Communications, told RT about this.

“In recent years, our country has been actively increasing its policy of exporting the agro-industrial complex, and export depends on world prices.

Accordingly, it is more profitable for farmers to sell their products at a global cost, "Bereznyuk explained.

According to Rosstat, in November inflation exceeded the target of the Central Bank and reached 4.4%.

Against this background, on December 9, Russian President Vladimir Putin criticized the government for rising food prices and demanded that measures be taken to resolve the problem within a week.

According to him, such goods as sugar, vegetable oil, flour and bakery products rose the most.

In this regard, by December 16, the government has prepared a number of measures to combat the rise in prices for socially important products.

In addition, a bill was developed that allows the government to introduce price regulation under certain conditions.

Recovery factors

In September, the Russian government approved a nationwide economic recovery plan.

According to Russian Prime Minister Mikhail Mishustin, the project contains about 500 events, and the cost of its implementation in two years will be about 5 trillion rubles. 

As First Deputy Prime Minister Andrei Belousov noted earlier, by the end of 2021, the authorities plan to switch to sustainable growth in real incomes of the population and the economy as a whole, to restore the industries most affected by the pandemic, and also to reach the unemployment rate below 5%.

From 2022 to 2024, the key task of the authorities will be the implementation of five national development goals and the achievement of the corresponding 25 targets.

“The main characteristics of this stage are GDP growth above 3% per year, real disposable income of the population - about 2.5%, investments in fixed assets - over 5% annually, non-oil and gas exports - by 3-4%,” Belousov explained.

According to experts interviewed by RT, as part of the implementation of the plan, the authorities will direct the bulk of the funds to support the population.

At the same time, according to Nikita Maslennikov's assessment, the economy will be able to fully recover from the consequences of the crisis by the beginning of 2022.

“The recovery will take place by accelerating economic growth, solving structural problems and launching a new investment cycle.

It is also worth noting that the renewal of the composition of the government played a positive role for the economy.

The new Cabinet has included a completely different speed of decision-making.

This helped to moderate the depth of the recession, since decisions were made quickly and quite technologically, ”Maslennikov stressed.

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According to Georgy Ostapkovich, the coronavirus pandemic has accelerated the digitalization of the economy.

In the context of quarantine restrictions in the country, the share of online trade and non-cash payments has grown significantly.

In addition, the development of health care received a noticeable impetus.

“Not only in our country, but all over the world have understood that it is necessary to restructure public health.

In the coming years, this industry will be one of the priority areas of development, and for Russia the sphere is capable of becoming a second oil, ”concluded Ostapkovich.