Russia’s economy grew for a second consecutive quarter despite high inflation and Western sanctions that have weakened the ruble, official data showed Wednesday. The economy expanded by 5.5% year-on-year in the third quarter after contracting in the same period last year.
The growth was driven by strong gains in passenger transport, retail trade, mining, and construction, according to the federal statistics agency Rosstat. The recovery was also supported by a rebound in global commodity prices, especially oil and gas, which are Russia’s main exports.
However, the growth rate was lower than the 10.5% year-on-year expansion recorded in the second quarter, which was the strongest since 2000. The slowdown reflects the impact of the coronavirus pandemic, which has hit Russia hard, as well as the ongoing geopolitical tensions with the West over Ukraine and other issues.
Inflation remains a major challenge for Russia
One of the main challenges facing the Russian economy is the high inflation rate, which has eroded the purchasing power of consumers and businesses. Inflation reached 8.4% in October, the highest level since 2015, and well above the central bank’s target of 4%.
The central bank has responded by raising its key interest rate six times this year, from 4.25% in January to 7.5% in October. The bank has signaled that it will continue to tighten monetary policy until inflation expectations stabilize.
The inflationary pressures are partly due to the depreciation of the ruble, which has lost about 10% of its value against the US dollar this year. The ruble has been affected by the Western sanctions, which have limited Russia’s access to international financing and technology, as well as by the uncertainty over the future of the Nord Stream 2 gas pipeline project, which faces opposition from the US and some European countries.
Russia’s economic outlook remains uncertain
Despite the positive growth figures, Russia’s economic outlook remains uncertain and depends on several factors, such as the evolution of the pandemic, the global demand for energy, and the geopolitical situation.
The International Monetary Fund (IMF) has projected that Russia’s GDP will grow by 4.7% this year and by 3.1% next year, but warned that the risks are tilted to the downside. The IMF said that the main challenges for Russia are to contain the spread of the virus, to diversify the economy away from oil and gas, and to improve the business climate and governance.
The World Bank has also forecasted that Russia’s GDP will increase by 4.4% this year and by 3.0% next year, but cautioned that the recovery will be uneven and vulnerable to shocks. The World Bank said that the key priorities for Russia are to accelerate the vaccination campaign, to support the most affected sectors and households, and to implement structural reforms to boost productivity and innovation.