2 Jun 2022 18:01

Reshetnikov: Demand crisis persists in Russian economy, counting on key rate cuts to continue

MOSCOW. June 2 (Interfax) - The demand crisis is persisting in the Russian economy, consumer lending has frozen, and the Economic Development Ministry is counting on the Central Bank of Russia (CBR) to continue cutting the key rate, Economic Development Minister Maxim Reshetnikov said at a briefing on Thursday.

"The estimate for GDP contraction in April is minus 3% compared to April last year. First, the logistical restrictions have affected the situation, which we can see by the rate of decline in wholesale trade and transportation, while industry has resisted the processes considerably better. The process of adapting has begun; nevertheless, we see minus 1.6% [decline in April industrial output]. Moreover, the picture is very mixed in terms of production, from minus 64% in the automotive industry to plus 32% in the pharmaceutical industry, meaning that the dynamics vary considerably. The logistical restrictions, and the reduction in imports, including intermediate imports of parts, components, and so on, are all naturally causing industries to react differently to the restrictions. Meantime, construction is up 8%, and the situation with agriculture is not bad, though compared to a rather weak base from last year. Overall, this is what we had been expecting," Reshetnikov said when describing in the economy in April.

"The economy is adapting structurally, while the figures confirm that a demand crisis is developing. The operational data that we see in May generally indicate that consumer lending has currently frozen," the minister stressed.

"Thanks to the launch of the preferential programs, mortgages have shown a definite increase in recent weeks, though the rise has thus far also not been able to reverse the overall situation. The government has launched measures, primarily programs for preferential lending that have allowed the overall loan portfolio of enterprises and legal entities to remain at April's level, though there has also been no growth," Reshetnikov added.

"We welcomed the Central Bank's decision last week on the unplanned cut in the interest rate, the key rate [from 14% per annum to 11% pa]. However, we are naturally waiting for next week, and we expect the trend to continue, as the Central Bank has signaled," Reshetnikov said, counting on the CBR's board of directors to continue cutting the key rate at the regulator's meeting on June 10.

"We can help the economy adapt to the structural shift that has begun only once lending, commercial lending at this time, has restarted," Reshetnikov believes.