The Russian Coronacrisis Economic Miracle

(28 July 2020)  The Russian economy has demonstrated a miraculously resilient recovery from coronavirus. It is the only economy among the top 10 largest economies globally for which industrial production declined less than 10% year-over-year during its coronavirus lockdown. While it’s true that Russia is among the countries least hit by the COVID-19 pandemic, that’s certainly at least in part thanks to the Russian Government taking one of the most stringent approaches to containing the virus. But with tight restrictions should come a need for economic stimulus, or so suggests the experience elsewhere globally. And yet Moscow’s announced COVID-19 stimulus package so far is among the smallest offered by the world’s largest economies - just 2.6% of GDP compared to 4.5% in China and over 10% in the United States and Europe.

How then do we explain the Russian coronavirus recovery “miracle”? To point to any single factor for a system as complex as an economy is futile. Instead, we will point you to several characteristics of the Russian economy that contribute to its coronavirus resilience.

• Extremely low representation of small businesses in GDP. Given the vulnerability of small business during COVID-19 lockdowns, countries with lower economic contributions from small businesses suffered less.
• Overrepresentation of state owned enterprises. About 70% of the Russian economy is controlled by state owned enterprises or corporations with large government stakes. These companies continued paying wages during the lockdown.
• Relatively lower share of services in GDP, especially compared to developed economies, including tourism, education, and healthcare. The consumption of these services requires in person contact that is impossible during lockdown.
• Relatively lower share of investment goods in industrial production. In any economic crisis, investments are hit harder than consumer demand and demand for intermediates.
• Limited nature of global economic integration and dependencies. Russia's exports of primary resources such as fossil fuels, metals, basic chemicals, and fertilizers are its key foothold in the global economy. Global demand for these commodities (even after OPEC+ deal) decreased by less compared to investment goods and consumer durables. And, as Russia is much less integrated into the global market compared to developed and major developing countries, domestic producers are less sensitive to disruptions of global value chains. 
• Moscow decreed a low unemployment scenario. Russian businesses were ordered to prevent layoffs. Whether this decree alone is responsible, Russia's unemployment rate increased only 2 percentage points from its pre-crisis level compared to a more than 10 percentage point jump in the United States.