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The Worst Is Probably Behind Us: HSE Experts on the Economic and Social Effects of COVID-19

The Worst Is Probably Behind Us: HSE Experts on the Economic and Social Effects of COVID-19

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Although the Russian economy is gradually recovering from this spring’s blow, it is too soon to talk about the situation evening out. Meanwhile, primary and secondary school students seem to be quite comfortable with uncertainty. Even more so, they appear to have a more positive view of the situation than their parents and teachers do. These are the discussion points of the sixth HSE analytical newsletter on the impact of COVID-19 on Russia and the world.

According to HSE experts, the Russian economy has already made it through the most challenging period of the coronavirus crisis. This May, the composite leading indicator (CLI) increased up to -11.3%, which is much higher than the multi-year low reached last month (-15.7%). 'On the one hand, this is an indicator of the ongoing economic downturn; on the other hand, it allows us to assume that the most acute phase of the crisis caused by the tailspin of oil prices and the massive lockdown in Russia and its key trade partners has passed,’ the newsletter states.

The letter notes that in May 2020, based on researchers’ estimates, the total import cost with no seasonal fluctuations could have increased 3-8% in comparison to what it was in April. The May import increase may be supported by a gradual recovery of business activity in production and trade in June following a systematic lifting of all restrictions. In addition, given the forecasts, imports in the second quarter for 2020 will drop anyway, and it appears the Russian economy and domestic demand are likely to have hit rock bottom in April-June.

Moreover, the Daily Economic Stress-Index also implies that the shock of the first ten days of March due to COVID-19 and Russia's walk away from OPEC+ deal has run its course. 'We can ascertain that this period of increased turbulence is over (it lasted from March 6 until May 11, 2020)', the experts suggest.

Many indicators including RTS and the effective exchange rate essentially have returned to their pre-shock values. The experts particularly note the stabilization of the oil market. In addition, a significant amount of liquidity is still concentrated in the Russian bank sector; there is no deficit in this regard, which is a typical consequence of an economic downturn. Nevertheless, the real sector of the economy is not recovering as fast as the financial one. The experts do not anticipate a quick economic recovery.

The situation in the regions is far from good. Although the consolidated regional budgets were fulfilled with a total positive balance of 261 billion RUB in January-April 2020, the stability of the regional budget structure is still in jeopardy. In April, the regions' own revenues were down by almost 30% compared to April of last year due to the fall of oil prices and the lockdown. According to the HSE experts’ estimates, the regions will need at least 1 trillion RUB in aid from the federal government.

Tourism appears to be one of the most affected sectors. 'According to the international organization of tourism, in 2020, the number of international trips is predicted to be 2-5 times lower than in 2019, depending on the course of the pandemic and when borders reopen,' according to the ‘Survey for the Coronavirus Pandemic Impact on Tourism’.

Regardless of whether the restrictions on international travel are lifted in the near future or by early 2021, international tourism will suffer major losses. Moreover, a number of countries are vulnerable to economic instability due to a lower export revenue from tourism, the review outlines.

At the same time, if the pandemic is successfully contained and restrictions can be lifted, a number of counties (Italy, Spain, and others) will have a chance to mitigate at least partially the losses that their national tourism industries sustained through the re-orientation of incoming tourist flows in the domestic market. 'Some countries with a huge recreation capacity like Russia will have new opportunities to expand their national tourism,' the experts believe.

The survey, 'School Barometer. COVID-19: Schooling and Teaching in Russian Schools', outlines how the crisis has affected the education sector. The survey results starkly illustrate that Russian school students are not only willing to live with significant uncertainty but even have a more positive attitude towards it compared to other respondents (such as parents, teachers, and school office representatives).

The students are happy to spend more time with their families (45.9% of respondents cited this) and are willing to take care of their siblings (57.1%). According to the survey, they have sufficient equipment and internet access to study at home (75.5%); half of students noted that they can easily communicate and coordinate with their teachers and that they are ready to learn new material. Most importantly, more than two thirds of them (69.9%) believe that their families have generally handled this situation well. Moreover, it is noted that the COVID-19 pandemic and lockdown stripped schools of their 'locker' function, teachers have been able to return to their vocational roots, and conditions are ripe for a 'renaissance' of the school teacher profession.

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