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Russia: Surprised revision shows deeper economic contraction in Q1

June 15, 2015

A more recent estimate published by the Federal State Statistics Service (Rosstat)—revisions to flash GDP estimates are rare in Russia—showed that GDP decreased 2.2% in Q1 over the same quarter last year. The reading was revised down from the 1.9% contraction estimated previously and came in below the timid 0.4% expansion registered in Q4 2014.

A detailed breakdown of data by production showed that the manufacturing sector deteriorated and contracted 0.6% annually in Q1, which contrasted the 0.6% expansion in Q4. Signs that private consumption is rapidly weakening reflected the fact that the wholesale and retail sector plunged in the first quarter (Q4: +1.7% year-on-year; Q1: -7.6% yoy). Moreover, the financial sector began to struggle since international sanctions were imposed on Russia last year and took a hit in the first quarter from weak domestic demand and tighter monetary conditions. The financial sector contracted 3.9% annually in Q1, which was below the 6.5% rise observed in Q4. In addition, the contraction in the construction sector deteriorated in Q1. It fell 4.1% in the first three quarters, which followed a 3.6% drop in Q4.

A quarter-on-quarter comparison confirmed the deterioration suggested by the annual data. GDP contracted a seasonally-adjusted 1.3% in Q1, which came in below the 0.6% drop tallied in Q4 201. The quarterly contraction was the steepest since Q2 2009.

In June, the Central Bank stated that it expects the economy to contract 3.2% 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 economic growth of 0.7%, in a scenario where oil prices recover and reach USD 70 per barrel, “by late 2016.” In a scenario where oil prices remain at about USD 60 per barrel during 2016, the Bank expects the economy to contract 1.2%. FocusEconomics panelists expect Russia’s GDP to fall 3.7% in 2015, which is up 0.5 percentage points from last month’s forecast. Panelists expect the economy to expand only 0.6% in 2016.


Author:, Senior Economist

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Russia GDP Q1 2015 0

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


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