Russia: Economy crawls out of recession in Q4 2016
March 31, 2017
Comprehensive data showed that Russia’s GDP returned to growth in the final quarter of 2016. GDP increased 0.3% year-on-year in Q4, which contrasted the 0.4% contraction in Q3. The result in Q4 was in line with expectations and caused overall economic activity to contract 0.2% in 2016, confirming the previous estimate. In addition to the data released for the final quarter, the Federal State Statistics Service (Rosstat) also reconciled previous quarterly dynamics and methodological and data revisions lifted GDP in 2015 and 2016, which suggested that the recession in those years was not as deep as initially thought.
The new data provided further evidence that the decline in investment stabilized in the second half of 2016 and a weak ruble caused export growth to remain solid. Gross fixed investment contracted just 0.3% annually in Q4, an improvement on the 0.8% contraction in Q3. The slower pace of contraction in Q4 reflected a recovery in oil prices and an improvement in business confidence. It was also visible that the decrease in household consumption lessened in the second half of 2016 (Q4: -3.2% yoy; Q3: -4.8% yoy), with Q4’s decrease marking the softest since private consumption began to contract in Q1 2015. This mainly reflects the gradual improvement in the country’s inflation, wage conditions and labor market. Meanwhile, government spending contracted for the 12th consecutive quarter in Q4, mainly as a result of the measures taken to rein in spending due to the fall in oil prices since mid-2014.
On the external front, exports of goods and services increased 3.7% in Q4, which followed the 4.2% expansion in Q3. Imports rebounded and expanded only 0.3% in Q4, which contrasted the 3.5% contraction in Q3. Due to the strong improvement in exports and imports, the net contribution of the external sector to overall economic growth was 1.1 percentage points (Q3: 1.8 percentage points).
The GDP result in 2016 also chimes with upbeat comments from Russian policymakers that the economy is over the worst of the protracted recession that began in 2015. A deal made by global oil producers late last year—with Russia’s endorsement—that aims to reduce the world’s oil glut is helping to prop up crude oil prices, which in turn will support Russia’s economic activity this year.
In March, the Central Bank revised its GDP growth forecasts and now expects the Russian economy to expand between 1.0% and 1.5% this year (previous estimate: 0.5% and 1.0%) and to increase between a range of 1.0%–2.0% in 2018, assuming that Urals oil prices average “roughly” USD 50 per barrel in 2017 and USD 40 per barrel in 2018—the Bank’s baseline scenario.
Author: Ricardo Aceves, Senior Economist