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ICBA Russia | Russia & Coronavirus Pandemic: 1 Year Together

10 Feb, 2021

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The covid-19 situation

The economic recession caused by the pandemic crisis and related quarantine measures in Russia continues. However, today the forecast of GDP dynamics by the end of 2020 is much more optimistic than just a few months ago.

The peak of economic activity growth occurred in August-September. After that due to the second wave of the pandemic, Russian market began to stagnate. The further dynamics of the recovery of the Russian market will strongly depend on the evolution of the epidemiological situation. In fact, there was no full lockdown in Autumn in Russia as it was at the first wave.  The Government introduced just a number of enhanced measures. Already in mid-January, the authorities of Moscow and some other regions of Russia lifted some measures aimed at slowing the spread of the coronavirus. For example, restaurants operate on a regular schedule, museums, libraries, schools are open, and companies are no longer required to keep 30% of employees to work remotely in Moscow. Of course, a number of restrictions remain in force, but cases continued to recede over the last days of January.

Since December, vaccinations with the Russian Sputnik V vaccine have begun. Since mid-January, Russians can get vaccinated for free. In this regard, government expects a decline in cases by March.

GDP: 2020 results and forecast for 2021

The International Monetary Fund (IMF) has raised its forecast for Russia’s economic growth in 2021-2022. According to the updated global forecast of the IMF in January 2021 the Fund expects that Russia’s GDP will increase by 3% this year and by 3.9% in 2022.

IMF assumes that Russia’s economy can reach its pre-coronavirus size at the end of 2021 and reduced forecast of GDP in 2020 from -4% to -3.6%.  See ratings of other experts in the chart 1. For example, the official forecast of the Ministry of Economic Development for 2021 is +3.3%, and for 2022 is +3.4%

Foreign trade

Foreign trade slowed down in Russia as was expected. According to the Federal Customs Service 9 months into 2020, results shows that exports decreased by 21.9%, and imports by 6.3% compared to the same period in 2019. The decrease of import volumes caused by the volatility of the ruble exchange rate, high level of market uncertainty and quarantine restrictions. Decrease of oil sales, petroleum products and gas entailed export drop. According to results of 9 months of 2020, oil exports fell by 41% in USD, petroleum products – by 32%, natural gas-by 48%. The volume of commodity imports decreased insignificantly (-7% for 9 months of 2020), compared with a sharp drawdown of imports of services (-54%).

We expect that due to gradual recovery of business activity in the global market and the softening of OPEC+ deal terms, export volumes will grow in both volumes and dollars.

If you look at the breakdown by country, the most significant foreign trade partner of Russia is China according to the results of 9 months into 2020. Imports from China increased by 0.9% compared to 2019, while exports to China are gradually recovering (-14.5%). For comparison export to EU dropped by 28.6%.

As for trade volumes with Poland, according to the results of 3 quarters its share is 2.5% of all foreign trade of Russia with other countries. Exports fell by 25.7%, while imports fell by 5.5%. This decline is one of the lowest in comparison with other EU countries, for which the decline was even greater.

Industries

Current economic crisis had various impact on different sectors of the Russian economy. Assessing the net financial result of Russian organizations (profit minus loss) for January-October 2020[1], it fell by 38.2% year to year. In the corporate sector as a whole the loss of unprofitable enterprises increased by 3 times to 55 billion EUR, and the profit of profitable enterprises decreased by 12% to 147 billion EUR. However, five industries showed positive dynamics for this indicator: agriculture, construction, water supply and waste disposal, postal and courier services, information and communication.

Volume of industrial production decreased by 2.9% in 9 months of 2020 compared to the same period of 2019.

[1] excluding small businesses, credit organizations, state/municipal institutions, non-credit financial organisations

The automotive sector declined strongly: automobile production (-19.8%), production of other vehicles (-5.7%). Russia saw new car sales decrease by 9.1% in 2020 on the previous year, as the industry was battered by the coronavirus pandemic, the Association of European Businesses (AEB) said.

While the top two leading manufacturers on the market, Avtovaz — a member of the Renault-Nissan alliance — and Kia, saw their sales decrease, third-place Hyundai’s grew.

The AEB said it expects a 2.1% rebound in sales in 2021 if there are no new Western sanctions against Russia and government subsidies for the automobile industry remain in place.

The decline of oil, gas and other minerals production caused by slowing down of global business. It was also affected by the collapse in oil prices due to the cancellation of the OPEC + deal in March 2020. The price of Urals crude oil fell from $ 65 per barrel at the beginning of 2020 to less than $ 20 per barrel by the middle of the 2nd quarter and recovered to around $ 56 per barrel by the end of January 2021.

Pharmaceuticals market has been relatively stable during the pandemic despite the ruble downturn. Pandemic led to a sharp increase of medical products domestic production (+24.2%). The Russian pharmaceutical market is mostly focused on imports. According to September 2020 figures exports of medical products increased by 20.1% compared to the same period of 2019. Volume of Russian medical products exports remain insignificant, but some countries have expressed interest to the Russian vaccine against COVID-19 and voiced their intention to purchase it. The following countries have already approved the Sputnik V vaccine: Belarus, Argentina, Guinea (experimental use), Bolivia, Algeria, Palestine, Venezuela, Paraguay, Turkmenistan, Hungary, UAE, Serbia (data as of 27.01.2021).

On the positive side, Russia is one of the least-indebted countries in the world, with the world’s fourth highest foreign re-serves, and  30%  of  global  natural  resources  possession.  It  is  fiscal  prudence  and  sound  management  in  the  face  of  sanctions  during  Covid-19  that  will  see  how  quickly  Russia  can  rebound.  There is still too much uncertainty to say.

Sources:

https://www.imf.org/en/Topics/imf-and-covid19/Fiscal-Policies-Database-in-Response-to-COVID-19

https://www.imf.org/external/np/g20/pdf/2020/111920.pdf

https://www.imf.org/en/Publications/WEO/Issues/2021/01/26/2021-world-economic-outlook-update

https://www.bbc.com/russian/news-55822326

https://economy.gov.ru/material/directions/makroec/prognozy_socialno_ekonomicheskogo_razvitiya/prognoz_socialno_ekonomicheskogo_razvitiya_rf_na_2021_god_i_na_planovyy_period_2022_i_2023_godov.html

https://economy.gov.ru/material/file/956cde638e96c25da7d978fe3424ad87/Prognoz.pdf

https://www.raps.org/news-and-articles/news-articles/2020/3/covid-19-vaccine-tracker

https://rosstat.gov.ru/folder/313/document/102217

https://www.rbc.ru/economics/26/01/2021/60100dcc9a79477e73991946

 

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