According to Russia’s preliminary economic data, the economy shrank 1.2% y/y in the first quarter, as compared with consensus forecast of a contraction of 2% y/y. The seasonally adjusted data indicated that the Russian economy contracted 0.1% in March and hovering around zero for 2M 2016. The Russian economy continues to adjust to the new normal of a lower oil price and the western sanctions. Meanwhile, the Russian industries and private consumers are being aided by the freely floating ruble and the import substitution program to change to domestic services and goods, noted Danske Bank in a research report.
The demand and output data for April indicates that stabilization continues, whereas the macro indicators’ development continues to be L-shaped. A stronger recovery is expected in the second half of this year, added Danske Bank. Last month, industrial production grew 0.5% y/y following a contraction of 0.5% in March. The seasonally adjusted data showed positive growth. The demand side rebounded a bit, but continues to be in the negative territory. Meanwhile, real wage growth, that accelerated positively by 1.5% did not accelerate in April. It fell 1.7% y/y.
The slightly negative wage growth at present is expected to be in line with the ongoing economic contraction. Consumer demand is unlikely to grow before the third quarter, noted Danske Bank.
“We raise our 2016 GDP growth forecast for Russia to -0.6% y/y, from -2.1% y/y previous (previous Brent average price assumption USD31/bl for 2016) as upside risks to our 2016 GDP forecast have been realised on a crude price rally (new assumption USD48.6/bl)”, added Danske Bank.
However, the bank stated that it has lowered the 2017 economic growth outlook to 1.2% y/y from the earlier projection of 1.8% as the central bank is likely to postpone easing of monetary policy that will depress economic growth. The macro forecast continues to face downside risks from downturns in the oil price, accelerating inflation, high fluctuations in the ruble, worsening geopolitical sentiment and lagging monetary easing, according to Danske Bank.
