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Russia: Contraction in Q3 softens, suggests that economic downturn bottomed out in mid-2015

November 12, 2015

Russia’s recent GDP data showed some relief as they suggest that a deepening contraction in economic activity has been left behind. According to a preliminary estimate published by the Federal Statistics Service (Rosstat) on 12 November, GDP decreased 4.1% in Q3 in year-on-year terms, which came in marginally above the 4.6% contraction recorded in Q2. The result fared better than the 4.4% decrease the markets had expected and provided further confidence to the view that the recession hit bottom in mid-2015. Q3’s economic contraction was in line with the Ministry of Economic Development’s estimate and Russian authorities now predict that Q4’s GDP growth will produce an economic contraction for the whole year of between 3.7% and 3.8%.

Although a detailed breakdown of data was not released with the preliminary estimate, the majority of analysts agree that several factors are driving the stabilization. One factor is that the Central Bank has cut its monetary policy rate, from 17.0% in December 2014 to the current level of 11.0%. This is buttressing ailing banks to attract more deposits in order to restore credit flows to businesses. Another factor is the gradual moderation in inflation, which—although still high—is expected to continue falling in the coming months as the effect of the ruble depreciation fades away. Moreover, the ruble’s sharp depreciation together with the ban on imports from the European Union in response to western sanctions have aided domestic producers.

Notably, the pace of contraction in industrial production and in investment continued to ease. Performance in the agricultural sector is also looking better primarily because of the redirection of domestic demand toward domestically-produced goods and away from imports. On a negative note, a deterioration in private consumption, characteristic of any recession due to the fall in real wages and increase in unemployment, is a persistent weakness in the Russian economy.

The Central Bank stated in September that it expects the economy to contract at a rate of between 3.9% and 4.4% this year. For 2016, the Bank sees that economic growth will depend on the dynamics of energy prices and the economy’s ability to adapt to external shocks. The Bank expects the price for Urals oil to average USD 50 per barrel in the next three years. As a result, the Bank sees a more protracted recession. It expects the economy to contract at a rate of between 0.5% and 1.0% in 2016. The government sees the economy expand 0.7% in 2016. FocusEconomics Consensus Forecast panelists project Russia’s GDP to fall 3.9% in 2015, which is down 0.1 percentage points from last month’s forecast. Panelists expect the economy to contract a milder 0.1% in 2016, which is down 0.2 percentage points from last month’s projection.


Author:, Senior Economist

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Russia GDP Q3 2015

Note: Year-on-year changes in GDP in %.
Source: Federal State Statistics Service (Rosstat) and FocusEconomics Consensus Forecast.


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