Russia’s recession likely deepening

Russia's growth continued to diverge, with recession in Russia versus strong growth in CEE and Israel. Russia indicators point to a deepening recession in Q2. 

"GDP might have fallen 4.4% y/y from -1.9% y/y in Q1. This implies negative momentum with GDP down 2.2% q/q in Q2, compared with -1.3% q/q in Q1. In Q1 the recession was caused by steep declines in consumption and investment", says Barclays. 

This was partially offset by improvements in real net exports as imports compressed due to the 30% average currency depreciation. The pattern in Q2 is likely to be quite different as RUB appreciation (15% on average) likely caused net exports to decline. 

Consumption and investment continued to fall, but at a much more moderate pace. In H2 15, the recession is expected to continue, but at a much more moderate pace. While July manufacturing PMI stayed contractionary, an improvement in services PMI took the composite slightly above 50. 

"The recent drop in global oil prices and subsequent RUB depreciation should cause a similar pattern in Q3 as in Q1 with consumption and investment declines offset by improvement in net exports. Overall, we think that Q2 will prove to be the bottom of the recession, but that slightly negative q/q growth will extend through Q3 and perhaps Q4", added Barclays.