Macroeconomic Environment in 2020
In 2020, the COVID-19 pandemic swept the world, causing a global slump in economic activity, border closures, lockdowns, business shutdowns, market disruptions, falling stock prices and bond yields, lower incomes and demand, and rising unemployment.
According to January 2021 estimates from the International Monetary Fund (IMF), global economy in 2020
The service sector was hit the hardest by the pandemic-related lockdowns, which explains the deeper contraction of developed economies compared to developing countries.
According to the IMF, the US GDP decreased by 3.4% year-on-year in 2020 prompting the US Federal Reserve to resort to exceptional fiscal stimulus measures. The Fed cut its interest rate three times during the year down to 0–0.25% in March 2020 in an effort to shore up business and household demand for loans, support living standards and economic activity. If COVID-19 is successfully tackled, the US economy is expected to grow by 5.1 year-on-year in 2021.
The IMF estimates that Eurozone’s GDP declined by 7.2% year-on-year in 2020 as a result of lengthy lockdowns, border closures and other restrictions.
To prop up the economy, the European Central Bank kept its interest rate at 0% throughout the year, while the deposit and short-term loan rates were at -0.4% and 0.25%, respectively. The regulator also launched the Pandemic Emergency Purchase Programme (PEPP) of private and public sector securities worth up to EUR 1.85 trln. Under the programme, the European Central Bank is able to buy, in particular, Greek debt obligations, which were left out of the previous asset purchase programme. The programme is expected to last until the end of March 2022. Provided the pandemic is successfully controlled, the Eurozone is projected to grow by 4.2% year-on-year in 2021.
UK registered the most significant GDP decline among developed nations – 10.0% year-on-year, according to the IMF. Investment fell by 11.3% year-on-year, while household expenditures dropped by 12.1% year-on-year on the back of the global pandemic and Brexit.
In some emerging economies, the COVID-19 impact was exacerbated by a slump in commodity prices and geopolitical tensions.
China was the only major economy to avoid an absolute decline in GDP caused by COVID-19. Contracting by 6.8% in the first quarter of 2020 during the pandemic’s first wave, China’s economy subsequently gained traction recording a 2.3% year-on-year growth at year’s end – the lowest rate since 1976. China’s growth recovery in 2020 was mostly driven
National Bureau of Statistics of China
COVID-19 drove India's GDP down by 8.0% year-on-year in 2020. However, the lifting of the coronavirus restrictions following wide-spread vaccination in 2021 coupled with an increase in business activity could help the country’s economy rebound by 11.5% year-on-year.
Countries across Latin America also suffered from economic downturn of various intensity, with Brazil's GDP falling by 4.5% year-on-year in 2020.
The Middle East and Central Asia recorded a significant contraction of their economies in 2020. Saudi Arabia’s year- GDP dropped by 3.9% year-on-year.
Under the IMF's upside scenario, global economy is projected to grow by 5.5% year-on-year in 2021, moderating to 4.2% in 2022. In 2021, GDP growth rates in advanced economies will rise to 4.3% year-on-year while emerging markets will enjoy growth of up to 6.3%.
The COVID-19 pandemic continues to present the greatest challenge to the global economy. The latter also suffers from continued trade and political tensions between the world’s three main economic powers, particularly, the US and China.
In 2020, widespread restrictions and business closures resulted in global trade contracting by 9.6% year-on-year, according to the IMF. This decline followed a sluggish 1.0% year-on-year growth in 2019 caused by global trade tensions.
Trade in goods and services in developed economies dropped by 10.1% year-on-year in 2020, while also sinking by 8.9% year-on-year in emerging markets.
The greater decline in trade compared to that of GDP, both globally and in groups of advanced and developing economies, points to the prevalence of regional rather than global integration trends.
Under a favourable COVID-19 scenario, the IMF forecasts a global trade growth at 9.2% year-on-year in 2021 and 6.7% year-on-year in 2022. These rates are in excess of projected world GDP growth, suggesting a return to the global cooperation mode.
As estimated by the IMF, the Russian economy shrank by 3.6% year-on-year in 2020, while according to the Russian Ministry of Economic Development it declined by 3.8% year-on-year. According to an initial assessment from the Federal State Statistics Service (Rosstat), Russia's GDP in 2020 dropped by 3.1% year-on-year, less than the agency’s original forecast. In 2019, the country’s economy grew by 2.0% year-on-year.
The downturn was mainly caused by widespread COVID-19 restriction measures in Russia and across the world and their negative impact on foreign trade, including decline in global demand and lower prices for Russian exports.
According to the Federal Customs Service of Russia, during the global recession, Russian
In 2020, exports contracted almost across the board, with crude oil, petroleum products, and gas (including liquefied natural gas – LNG) hit the hardest. The reduction in oil exports was largely due to the OPEC+ agreement to cut production.
In value terms, crude oil exports shrank by 40.4% year-on-year in 2020 to USD 72.4 bln, petroleum products dropped by 32.2% year-on-year to USD 45.3 bln, gas, including LNG, slipped by 35.4% year-on-year to USD 32.0 bln. In 2020, crude hydrocarbons and petroleum products accounted for 44.3% of total exports, down 11.8 p.p. year-on-year.
Russia’s budget deficit in 2020 was at 4.5% of GDP, public debt went up from 12.3% of GDP in 2019 to 19.1% of GDP as at 1 January 2021.
According to the Bank of Russia, the country’s foreign debt as at 1 January 2021 stood at USD 470.1 bln, down by USD 21.3 bln compared with the beginning of the year. Debt obligations to non-residents decreased in all sectors of the economy, with the greatest decline in other sector foreign
As at 1 January 2021, Russia’s foreign reserves were up by USD 41.4 bln to USD 595.77 bln, mainly due the increased share of monetary gold (69% contribution). Therefore, Russia’s net debt is negative.
Major international rating agencies confirmed the resilience of Russia’s economy and financial system. S&P Global Ratings, Moody’s and Fitch affirmed Russia’s sovereign investment-grade rating at “BBB–,” “Baa3,” and “BBB”, respectively, with a stable outlook.
In 2020, the number of those employed decreased even further building on the descending trajectory of recent years. In December 2020, employment went down by 1.7 mln people or 2.3% year-on-year. The decline in employment was due to both a natural reduction in the labour force by almost 0.7 mln people (down 0.9% year-on-year) and an increase in the number of unemployed by 1 mln people (up 27.6% year-on-year). The unemployment rate in December 2020 was up by 1.3 p.p. year-on-year at 5,9%, the highest in five years.
In 2020, the recession resulted in lower consumer purchasing power, with the real disposable income falling by 3.5% year-on-year, according to Rosstat. However, real accrued wages increased in 2020 by 2.2% year-on-year.
According to the September 2020 forecast from the Russian Ministry of Economic Development, economic recovery in 2021 will be influenced by a number of competing factors. On the one hand, as vaccines are rolled-out and lockdowns and business restrictions are lifted, growth will be increasingly driven by the government stimulus initiatives supporting the national development goals. On the other hand, fiscal consolidation and a gradual reduction of the pandemic-related fiscal support in 2021 are expected to constrain economic growth.
Taking into account these factors, the Ministry of Economic Development projects a 3.3% year-on-year GDP growth in 2021 and at least 3.0% year-on-year in 2022–2023 driven mainly by expanding domestic demand, both consumer and investment.
According to the January 2021 forecast from the IMF, the Russian economy will grow by 3.0% year-on-year in 2021, accelerating to up to 3.9% year-on-year in 2022.
Energy Prices. Foreign Exchange Rates, Monetary Policy and Inflation in Russia
In 2020, oil prices plummeted reflecting a crisis in the global oil market caused by an unprecedented decline in demand as a result of COVID-19 related restrictions. The annual average Brent price fell by 35.2% year-on-year to USD 41.67 per
Throughout 2020, global oil prices were driven by mixed trends. In January–April 2020, Brent crude went down from USD 63.5 per barrel in January to USD 18.6 per barrel in April, while Urals crude dropped from USD 61.3 per barrel to USD 20.2 per barrel, respectively. The tumbling of oil prices in March–April 2020 was caused by the collapse of the OPEC+ deal due to the failure of the countries involved to reach agreement on limiting production amid falling demand for oil and high crude oil inventories. From May 2020 to the year’s end, there was an upward trend in oil prices supported by a new OPEC+ deal to cut production and gradual lifting of lockdown restrictions, with the monthly average Brent price reaching USD 49.9 per barrel in December. Some decline of prices in autumn was due to the second wave of COVID-19 and political tensions in the US related to the presidential election campaign.
Amid continued geopolitical tensions, lower oil prices, broader sanctions and the risk of new sanctions against Russia, the country’s national currency was weakening in 2020. According to the Bank of Russia, the annual average nominal USD/RUB exchange rate went up by 10.0% year-on-year in 2020 to RUB 71.94 per USD.
As at 31 December 2019, the nominal USD/RUB exchange rate was RUB 73.88 per USD, having grown by 17.4% over the year.
However, compared with the currencies of other developing and oil-producing countries, RUB’s depreciation in 2020 was not the most significant.
Unlike in the previous years, the Bank of Russia pursued a rather soft monetary policy, acting resolutely to cut the interest rate. Between 7 February and 24 July 2020, the Bank of Russia reduced its interest rate four times from 6.25% per annum at the beginning of the year to 4.25% per annum, which remained unchanged through the year’s end.
According to Rosstat, inflation accelerated in 2020 reaching 4.9% in December (vs 3.0% in December 2019), not significantly deviating from the 2019 target of around 4.0% set in the Monetary Policy Guidelines for 2021–2022 published by the Bank of Russia. The rising inflation was primarily driven by the weakening of rouble’s nominal exchange rate against major currencies, with increased prices of imported goods causing prices of domestic products to grow. The higher inflation was also a result of monetary easing to help tackle the fallout of COVID-19 and, finally, it reflected changes in the international environment and poor yields of certain agricultural products.
|Consumer price index||103.0||104.5||104.9||103.4|
|Industrial producer price index||95.7||102.9||103.6||97.1|
|Oil and natural gas production||89.2||102.3||90.7||78.9|
|Petroleum product output||84.7||97.0||96.8||89.8|
|Production, transmission and distribution of power||100.0||104.4||104.5||102.9|
|Freight rate index||101.5||102.8||105.2||101.7|
By contrast, the annual average consumer price index fell to 3.4% in 2020 (vs 4.5% in 2019).
As at December 2020, the annual average producer price index was 103.6% (vs 95.7% in December 2019). In 2020, the annual average industrial producer price index in Russia was 97.1% (vs 102.9% in 2019).
The Bank of Russia expects measures to curb inflation in 2021 to bring it back to the Bank’s target of no more than 4.0%. The Ministry of Economic Development expects a 3.7% year-on-year increase in prices as at December 2021 with an annual average rise of 3.6% year-on-year.
The Ministry forecasts that annual average industrial producer prices in Russia will go up by 5.0% year-on-year in 2021.
The Russian oil companies’ operating costs are very sensitive to changes in natural monopolies’ transportation tariffs.