Russia’s effort on Economic recovery in terms of Covid-19

International Economics
Nov 13, 2020
4 min read

Updated: Nov 20, 2020

The covid-19 pandemic infected tens of thousands of people every day, causing the Russian government to put in place measures to segregate society, which in turn can cause a serious economic crisis.

Photo: Created by Kieu Minh

How severe is the economic impact in Russia?

Like many other countries around the world, a number of industries were shut down completely and their employees had no income during the pandemic. The most affected are tourism (including airports, hotels), entertainment (museums, sports, bars and restaurants, exhibitions,…), but also companies that provide household services (repair, laundry, beauty salon, etc.). Most stores were closed except for groceries and pharmacies. Many SMEs also have been hit hard.

Before the pandemic, the unemployment rate in Russia was relatively low at 4.5%. At the beginning of May, the number of unemployed people doubled compared to April. There are 1.4 million official unemployed people in Russia. Even many people currently have no income during the pandemic (although not formally unemployed). The Russian government is starting to directly and indirectly support businesses and the people.

In April, Russia's industrial production fell 13.3%. The European Commission forecasts GDP in Russia will be 5% lower in 2020 than in 2019 as a direct result of the corona virus and low oil prices. The Russian economy's recovery depends on the development of oil prices and the length and severity of the pandemic.

The impact of the corona crisis on the logistics industry

Due to the direct and indirect effects of unemployment and the devaluation of the ruble in February - March, consumption in Russia will decrease significantly and therefore less consumer goods will be imported. However, the weak ruble will stimulate exports, mainly from Russia, mainly metals, forest products and fertilizers.

So far, there has been no significant decrease in the turnover of Russian ports. In the first quarter of 2020, throughput of Russian seaports increased by 2.4%, of which container throughput increased by 1.6%. However, crude oil exports from Russia in January - April 2020 were 86.3 million tons, down 1.8% from last year.

In the January-May 2020 period, Russian seaports handled 351.4 million tons, up 3.2% from the same period last year. Container handling activities at Russian ports fell 1% in five months to 2.2 million TEU (cargo container imports fell 4.5%, but cargo container exports rose 9.4%).

The Russian economy was affected by COVID-19 in February when production in China fell and oil consumption dropped significantly. In addition, there have been arguments with OPEC regarding oil production. From there, leading to a sharp drop in oil prices to US$42,45/bbl. The export of energy products brings significant income to the budget in Russia and thus affects the Russian ruble. As a result, the ruble depreciated quite seriously. On February 20, 1 Euro was equal to 68 Russian Rubles, on March 19, 88 ruble/ Euro (minor recovery in May with 79 ruble/euro).

Furthermore, Russia's primary industrial output accounting for the majority of GDP, fell 10% year-on-year in April, a smaller decrease compared to 2009 (-15% y-o-y in April worst month). However, total retail sales fell more than 23% year-on-year in April, while sales of non-food products fell a record 36.7% year-on-year.

It is believed that recovery of internal demand to pre-crisis levels will be very slow and may take at least two years. The recovery of the Russian economy depends not only on the Russian pandemic situation, but also on the resilience of the global economy and oil prices.

The Recovery Scenarios 2020 to the pandemic

Photo: Internet

On October 6, President V. Putin adopted a nationwide anti-crisis plan to restore the economy affected by the Covid-19 pandemic.

The main objective of the plan is to bring jobs and people's income back to a relevant level, ensure GDP growth, reduce unemployment and re-start small and medium enterprises. The national economic recovery plan, slated to 2024, includes 500 events worth 6,400 billion rubles.

Accordingly, there are 3 phases in the plan:

The first phase from June to September 2020 has been implemented in practice. During this period, the government zoned the recession and stabilized the situation in the most affected sectors such as industry, transportation, and services, to curb the decline in household income, and restore jobs. do.

According to First Deputy Prime Minister Andrei Belousov, 4 trillion rubles, or 3.9 percent of GDP, were spent from the budget for this period.

The second phase starts in October 2020-6 / 2021, with the main task of economic growth and population income reaching at least 98% of the targets for 2019. Commune support measures The union at the federal, regional and city levels will provide concessional loans at 2%, debt relief provided that job retention is guaranteed until 1 April 2021.

At this stage, consumer spending, private investment and exports will increase by at least 5%, GDP will increase by 3.3%.

The final phase, expected from July to December 2021, is aimed at the positive growth of both the economy and the real income of the population. During this time, there are no longer any restrictions. Digitalization will affect all major sectors - health, construction, education; is planned to shift to the principle of "the State as a digital platform" - the comprehensive provision of public services in digital form without the need for departments and MFC based cloud-based solutions , in the electronic register of licenses and permits, to form a unified online citizen identification system.

This plan will be considered complete if by the end of 2021, the unemployment rate falls below 5% and GDP increases at least 3%. Real wages must increase at least 2% / year, retail revenue increases 2.5% and service volume paid to people increases 3%; the number of small, medium and private enterprises will return to the level of the first quarter of 2020.

Due to the serious influence of Covid 19, Russia is taking measures to restore the economy as well as support people in need during the pandemic by:

Speed up Agriculture and Food Security through import and export restrictions (esp. Cereals) to protect consumers and producers; allows deferred tax payments and low-interest credit for industries affected by the COVID-19 crisis, including in the agricultural sector, support interest rates on agricultural loans. Besides, the government shifted unemployed labor to agriculture as well as increased focus on worker health and safety,…
Facilitating the Use of Digital Payments: Covid-19 is the key factor fostering the greater use of digital financial services, online payments also reduce the spread of the pandemic,
Supporting Jobs and Firms,
Macro-fiscal Policy Response,
Accelerating digital transformation while bridging the digital divide,
Strengthening institutions for effective and transparent management ,
Impulsing tourism.