Russian recovery rumbles on

Russian GDP improved in Q2 but the authorities need to address structural imbalances if the economy is going to grow strongly in a world of cheaper oil.

11 August 2016

Craig Botham

Craig Botham

Emerging Markets Economist

The Russian economy contracted 0.6% year-on-year in the second quarter of 2016, in line with our forecast but a better performance than expected by the market. The number is also an improvement on the first quarter reading of a 1.2% contraction.

As this is an advance reading, there is no breakdown available so the drivers of the improved performance can only be inferred from higher frequency data.

Weaker currency helpful

Industrial production has expanded throughout the quarter in year-on-year terms as it recovers from low levels. This has likely been helped in part by a weaker currency; exports are on an improving path, though still down year-on-year. Retail sales are still anaemic, with the consumer facing headwinds from high unemployment, so consumption is unlikely to have been particularly strong.

Gradual recovery

The outlook from here remains one of gradual recovery, recent oil price weakness notwithstanding. We expect positive year-on-year growth by Q4, and a positive overall growth performance in 2017, though still muted. The worst of the oil price crash effects may be over, but Russia’s economy needs to address structural imbalances if it is going to grow strongly in a world of cheaper oil.

Important Information: The views and opinions contained herein are those of the author(s) on this page, and may not necessarily represent views expressed or reflected in other Schroders communications, strategies or funds. This material is intended to be for information purposes only and is not intended as promotional material in any respect. The material is not intended as an offer or solicitation for the purchase or sale of any financial instrument. It is not intended to provide and should not be relied on for accounting, legal or tax advice, or investment recommendations. Reliance should not be placed on the views and information in this document when taking individual investment and/or strategic decisions. Past performance is not a reliable indicator of future results. The value of an investment can go down as well as up and is not guaranteed. All investments involve risks including the risk of possible loss of principal. Information herein is believed to be reliable but Schroders does not warrant its completeness or accuracy. Some information quoted was obtained from external sources we consider to be reliable. No responsibility can be accepted for errors of fact obtained from third parties, and this data may change with market conditions. This does not exclude any duty or liability that Schroders has to its customers under any regulatory system. Regions/ sectors shown for illustrative purposes only and should not be viewed as a recommendation to buy/sell. The opinions in this material include some forecasted views. We believe we are basing our expectations and beliefs on reasonable assumptions within the bounds of what we currently know. However, there is no guarantee than any forecasts or opinions will be realised. These views and opinions may change.  To the extent that you are in North America, this content is issued by Schroder Investment Management North America Inc., an indirect wholly owned subsidiary of Schroders plc and SEC registered adviser providing asset management products and services to clients in the US and Canada. For all other users, this content is issued by Schroder Investment Management Limited, 31 Gresham Street, London, EC2V 7QA. Registered No. 1893220 England. Authorised and regulated by the Financial Conduct Authority.