Russia: Economic recession nears end
September 9, 2016
The contraction in the Russian economy in the second quarter was the slowest since the recession began in late 2014. Comprehensive data showed that GDP contracted 0.6% annually in Q2, which came in above the 1.2% decrease recorded in Q1. The result was in line with the Ministry of Economic Development’s estimate, although market analysts had expected a steeper fall.
The new data provided further evidence that the Russian economy is close to crawling out of the recession. A detailed breakdown by economic sectors showed that the agricultural sector continued to expand in Q2. It increased 2.0% year-on-year, faster than the 0.7% rise in Q1. Encouraging news came from the industrial sector, which grew 0.3% in Q2. Although the increase was tepid, it marked the first expansion in the sector since it began to contract in Q3 2014. Meanwhile, most of Russia’s services continued to perform poorly in Q2, mainly due to still lackluster private consumption. The construction sector continues to cast a dark cloud over the economy as it plunged 9.5% in Q2 (Q1: -1.6% year-on-year). Construction has remained depressed since mid-2013.
The Central Bank expects that GDP will show positive growth in the third quarter, stating that, “expectations for the beginning of a slow economic recovery in the third quarter have strengthened.” The Bank added that, “the economy is expected to enter a trajectory of slow growth in nearest months if there’re [sic] no new external shocks.”
Considering that the price for Urals oil will average USD 38 per barrel in 2016, the Central Bank expects the economy to contract between 0.3% and 0.7% this year, which is less than the Bank’s previous estimate that saw the economy contracting between 1.3% and 1.5%. The Bank expects the economy to expand at a rate of between 1.1% and 1.4% in 2017, assuming that Urals oil prices average USD 40 per barrel. Previously, the Bank had expected the price for Urals oil to average USD 35 per barrel and had projected economic growth rising to within a range of minus 0.5% and plus 0.5% in 2017.
Author: Ricardo Aceves, Senior Economist