The decline in production and investments will be confining the opportunities for an upturn in income. Consumer demand will be shrinking. The measures implemented by the Government and the Bank of Russia will support the economy, and specifically the most affected industries. Economic growth in 2021–2022 will largely be recovery-type. According to our forecast, GDP will expand by 3–5% in 2021 and by 1.5–3.5% in 2022. GDP growth will be promoted by a further implementation of national projects. However, our baseline forecast factors in only the already effective budget support measures. An upturn in the economy and domestic demand will also be driven by the easing of monetary conditions resulting from the monetary policy pursued. This will support lending, and its growth rate will rise from 3–8% this year to 6–11% in 2021–2022. The lending potential will also be maintained owing to the regulatory easing and the expansion of the Bank of Russia’s specialised refinancing instruments. According to our estimates, the easing of monetary policy is needed to maintain annual inflation close to 4% over the forecast horizon. The slump in domestic and external demand this year will be considerably containing inflation, which induces the risk of its substantial deviation downwards from the target in 2021 and over a medium-term horizon if no additional monetary policy measures are introduced. The disinflationary pressure of weak demand will offset the effect of temporary proinflationary factors, that is, the ruble weakening and the observed elevated demand for individual products, already this year.

In this case, we can expect that in the third and fourth quarters economic activity will be recovering quarter-on-quarter. The economic situation will be returning to normal step-by-step. The direct adverse impact of the restrictions primarily falls on this quarter, while their secondary effects will continue to manifest in the future. According to our surveys, over 80% of the businesses across various industries have been experiencing the influence of the coronavirus pandemic and current 1/3  BIS central bankers' speeches  restrictions. Companies’ business sentiment has materially declined. It will take time to restore business processes, logistics and production chains, offset the reduction in profit and revenue, build up reserves and savings that have been used to a greater or lesser extent over the second quarter. Combined with uncertainty regarding potential changes in the external environment, this will limit production, investment and consumer activity. In these conditions, GDP will shrink yearon-year in the third and fourth quarters, that is the annual rate of economic growth will be negative. According to the Bank of Russia’s forecast, GDP will overall decrease by 4–6% in 2020. The major contributor to this reduction will be a decline in exports that may reach from 10% to 15%. Moreover, fixed capital investment will also substantially decrease (by 6– 10%) compared to the previous year. Companies will be primarily using their financial resources to restore their daily operations. Uncertainty about the prospects of domestic and external demand will be confining investment plans.