This weak report could also help defuse recent criticism of Rosstat for producing overly rosy economic data.
The Economy Ministry said the first-quarter result was “somewhat lower” than its 0.8 percent estimate and blamed the weak performance on the tax hike, as well as slow corporate and mortgage-lending growth.
“This is all happening against the background of a strong budget surplus,” said Dmitry Dolgin, an economist at ING in Moscow. “The government’s reaction could be a further review of fiscal policy in the direction of easing.”
What Bloomberg’s economists say
“Quarterly growth was close to zero on a seasonally adjusted basis. A pullback in consumer spending will take the blame, but this raises questions about broader weakness.” — Scott Johnson, Bloomberg Economics
Consumer confidence fell to a historic low of 62 in the first quarter, three points below the previous reading, market researcher Nielsen said in a report. With the current economic conditions, fewer people are expecting favorable financial prospects and think now is not the best time to spend money, according to Marina Volkova, head of analytics and consulting at Nielsen Russia.
The Bank of Russia sees the economy expanding 1.2 percent – 1.7 percent this year, citing the VAT increase as “a small restraining effect” and noting that planned government infrastructure spending could boost growth later this year.
But BofA Merrill Lynch Global Research warned in a report Thursday that increasing risks to global growth could also cloud the outlook for Russia next year, with the 2020 result sliding below 1 percent, confounding hopes of an uptick.