Group Economics Emerging Market Research
Russia Watch
Peter de Bruin +31 20 3435619
Has the recession ended?
22 September 2015
There are some tentative signs that the economy has bottomed out, despite the PMI’s remaining below the 50-mark
This would suggest that the recession is about to end, though growth prospects remain poor
Indeed, renewed ruble weakness has rekindled inflation which will further erode households’ purchasing power
The CBR needs to find a balance between high inflation and a weak economy, but will soon start to loosen again
Recovery
in
consumption
suggests
economy
has
falling to 47.9, from 48.3 the month before. This kept the index
bottomed out…
below the boom-bust mark for ninth month in a row, though it
Data for August show some tentative signs that the economy
is worth bearing in mind that the relationship between the
has found a bottom. Real retail sales fell by 9.1% compared to
actual industrial production figures and the manufacturing PMI
a year ago. This marked the sixth month in a row that retail
has weakened lately. Still, the services PMI also slipped back
sales contracted by around 9%. This suggests that the series
below the 50-mark. The upshot is that the data are currently
is finding a bottom. Indeed, when we correct for seasonal
painting a bit of a mixed picture, though our feeling is that the
influences, real retail sales have started to grow modestly
economy is about to bottom out.
since June. What is more, vehicle sales declined by -19% in August. That is still a very deep drop, but much less severe
Lower oil prices pose a risk,..
than the -42.5% fall that was recorded in March of this year.
The ongoing weakness in oil prices, however, does pose risks
And again, the series is showing an upside trend, when we
and could somewhat delay the moment that the economy will
correct for seasonal patterns.
start to recover. About three fourths of Russia’s exports consist of energy products and lower oil prices will therefore weigh on
Signs that the economy is bottoming out %yoy
the country’s growth outlook. %yoy
25
150
Lower ruble has pushed up inflation again
20
120
%yoy
15
90
100
18
10
60 30
80
16
5 0
0
60
-5
-30
40
-10
-60
-15
-90 07
08 09 10 11 Real retail sales (lhs)
12
13 14 15 Light vehicle sales (rhs)
%yoy
14 12 10
20
8
0
6 4
-20 13 Source: Thomsons Reuters Datastream
Also an improvement in investment
14 Ruble to dollar (lhs)
15 Inflation (rhs)
Source: Thomsons Reuters Datastream
Meanwhile, there are also some tentative signs that investment is improving. Gross fixed investment fell by 8.5% in
…as renewed ruble weakness has pushed up inflation,…
July, but by -6.8% in August. It is still early days, but it seems
In addition, the renewed drop in oil prices has pushed down
that this series has found at bottom too. What is more, the
the ruble. In turn, this has driven up import prices and inflation
declines in industrial production growth have continued to
more generally. It rose from 15.3% in June to 15.6 in July and
moderate. Industrial production decreased by 5.5% in June,
15.8% in August. Judging from the second graph, the drop in
but production was down by 4.3% compared to a year ago in
the ruble will push up inflationary pressures further for at least
August. Still, the improvements partly stem from the low base,
one or two more months. In turn, this will bite deeper into the
while these indicators remain in contraction territory.
budgets of households, firms and the government, risking to delay the recovery.
…though PMI’s have fallen further below the 50-mark Moreover, other data have painted a less encouraging picture. In particular, the manufacturing PMI slipped further in August,
2
Russia Watch – Has the rec cession ended? 22 Septembe er 2015
that was recorde ed in the middlee of April when n the series
…p prompting CBR to stay on hold h The e renewed rise e in inflation alsso prompted the e Central Bankk
tro oughed. The sttabilisation of R Russia’s FX res serves is a
of Russia R (CBR) tto keep its policcy rate at 11% during its
re eflection of the fact that the ecconomy has en ntered calmer
me eeting on the 11 1th of September. The CBR needs to find a
wa aters and that the pace of cappital outflows has h continued to t
balance between rising inflation and the weak economic
re ecede significan ntly (see graphh below). As a result, r the amo ount
bac ckdrop. Until itss September meeting, m helped d by a modest
off foreign money y inflows due too Russia’s currrent account
dro op in inflation, the central bank had loosened d is policy
su urplus is, at the e moment, slighhtly higher than n the outgoing
sha arply, with cum mulative rate red ductions totallin ng 6 percentag ge
ca apital outflows, which explainss the modest accumulation a of
points. But with in nflation on the up u again, the central c bank ha as
FX X reserves.
t predominan nt factor. started to see inflation risks as the
Capital C outflow ws have slow wed significantly CB BR will soon start to loose en policy aga ain
$bn
bps s
90 80 70 60 50 40 30 20 10 0
18 8 16 6 14 4 12 2 10 0 8 6
13 Q1
13Q3
14Q Q1
14Q3
15Q1
4 04
05
06
07
08
09
10
11
12
13
14
15 So ource: Thomsons Reuters Datastreaam
Sou urce: Thomsons R Reuters Datastream m
ecession should soon end,, but recovery y will be weak Re …b but loosening cycle to startt soon again
Ta aken everything together, thee tentative signs of stabilisatio on
How wever, we think that the CBR R will soon startt to ease policyy
that we are curre ently seeing are re happening a bit sooner than
aga ain. Our energyy analyst believves that oil pric ces should
e had expected d. That said, thhe ongoing wea akness in oil we
reb bound modestlyy later this yearr and in the beginning of nextt
prrices will depress the outlook somewhat. Th hese factors willl
yea ar. This suggessts that we are likely to see a modest
prrobably roughly y balance eachh other out. We e therefore leavve
stre engthening of tthe ruble, which should take away a an
ou ur forecasts unchanged and ccontinue to thin nk that the
imp portant factor th hat has been driving d up inflation lately. In
ec conomy, on ave erage, will shri nk by 4% this year, y before
add dition, the weakk economy sho ould act as a de eflationary forcce.
staging a very modest m recoveryy next year. Ho owever, we exp pect
In short, s we contin nue to think tha at inflation, afte er one or two
oY drop in outpput that was rec corded in Q2 will w that the 4.6% Yo
mo ore months of fu urther gains, will w come down in the remaind der
st rate of contraaction and thatt the YoY declines mark the deepes
of the t year and ne ext year. Accorrding to our esttimates, it shou uld
p going forwardd. In QoQ terms, the economyy wiill be less deep
fall to around 12% % in Decemberr, and to 5% at the end of nexxt
started to contra act in the third qquarter of 2014 4, implying a lower
yea ar. What is morre, due to rene ewed softness in oil prices, the e
ba ase of comparison when the 22015 third quarter GDP figure es
cen ntral bank now thinks that the e economy will shrink by 4.2% %
wiill be released. Together withh a slowly impro oving economicc
insttead of 3.2% e estimated earlie er. This implies s that more
picture, this shou uld help YoY ddeclines to mod derate. Howeve er,
mo onetary stimuluss will be neede ed to counterac ct the effects off
the recovery will be weak. Eve n though the unemployment rate u
low wer oil prices. W We therefore exxpect the centrral bank to
as fallen, worke ers are workingg fewer hours, while having to o ha
red duce its key rate, possibly as early as during g its October
co ope with high in nflation. As a reesult, households’ real
me eeting.
pu urchasing powe er has taken a big hit. In addiition, the sa anctions imposed by the EU/U US make it diffficult for firms to o
modest upwarrd trend FX reserves on m
bo orrow externally. Finally, interrest rates are still s high, implying
es eanwhile, it is encouraging to note that Russ sia’s FX reserve Me
that financial con nditions will rem main tight in the foreseeable
hav ve remained on n a modest upw ward trend, des spite the recen nt
ugh we think thhat the CBR will soon start to future, even thou
bou ut of ruble weakness. Indeed, FX reserves totalled t $365bn n
loosen policy again.
in the t beginning o of September, $14bn $ more than the $351bn n
3
Russia Watch – Has the rec cession ended? 22 Septembe er 2015
Ke y forecasts for the t economy off Russia 20 012
2013
20 014
2015e
201 6e
GD DP (% yoy)
3.4
1.3
0 0.6
-4.0
0 0.5
CPI inflation (% yoy)
5.1
6.8
7 7.8
15.0
7 7.0
-0.1
-0.5
-0 0.5
-3.6
-2 2.5
9
10
10
13
15
3.6
1.7
3 3.0
5.0
4 4.0
oss fixed investme ent (% GDP) Gro
21.9
21.8
20 0.6
17.9
17 7.3
Gro oss national savin ngs (% GDP)
28.4
24.5
23 3.5
21.3
20 0.6
USD/RUB (eop)
30.4
32.7
61
60
55
EU R/RUB (eop)
39.4
45.1
73
60
61
dget balance (% GDP) G Bud Govvernment debt (% % GDP) Current account (% GDP) G
dget b alance, curr rrent acc. for 2015 and 2016 are rou unded figures Bud
Source: EIU, ABN AMRO A Group Ecconomics
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