Russia's economy slowed sharply to 0.5 percent growth year-on-year in the first quarter, according to state statistics published Friday, with the government pinning the blame on a VAT hike. The economy ministry had predicted 0.8 growth in the first quarter while the central bank had given a more optimistic figure of between 1 and 1.5 percent. The economy ministry said in a statement that the slower growth was "expected and linked to the weakness of domestic demand coming on the back of a higher tax burden" after Russia raised VAT from 18 to 20 percent.
The VAT hike on January 1 was a very unpopular measure and along with an increase in the age of receiving a state pension prompted a drop in approval ratings for President Vladimir Putin. Capital Economics research group called the growth figure "much weaker than anticipated" and said it was prompted by "broad-based" weakness in the economy as "growth of industrial production, retail sales, construction output and agricultural production slowed".
The country's economy only returned to growth in 2017 after two years of recession in 2015 and 2016. In the fourth quarter of 2018, GDP had grown 2.7 percent year-on-year and Russia's economy grew 2.3 percent over the whole of 2018, exceeding the expectations of the economy ministry and the International Monetary Fund.
The government has predicted that growth for the whole of 2019 will be 1.3 percent, while the central bank has forecast from 1.2 to 1.7 percent. The central bank has suggested that Russia will see higher growth after the end of this year due to the launch of national projects to improve infrastructure and services.
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