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,