Schroders Quickview: Russian growth surprise fails to brighten outlook
Despite a stronger than anticipated finish to 2014 for Russia’s economy, we expect a significant contraction in GDP over 2015.
7 April 2015
First quarter data in 2015 has been poor. Inflation continues to climb (now running at almost 17%) whilst industrial production and PMIs show activity to be weak everywhere.
Disposable income has also been contracting, making continued support from consumption a very unlikely prospect, leaving the outlook for the Russian economy bleak despite an upbeat finish to 2014.
Insipid Q4 growth fails to inspire
The Russian economy put in a better than expected performance in the final quarter of 2014, with GDP growing 0.4% year-on-year against consensus expectations of 0% growth.
The Q4 growth was lower than the upwardly-revised previous quarter’s 0.9% growth, but a weaker number had been expected given the somewhat calamitous collapse of oil in the closing weeks of 2014. Growth for the year overall came in at 0.6%.
Households fail to provide home comfort
Looking at an expenditure breakdown of the GDP data, what growth there was came entirely from household consumption, which managed to expand 1% year on year, up from 0.2% the previous quarter.
Government spending and investment both contracted, as did exports. This matches some anecdotal evidence that consumers have been frontloading consumption thanks to high inflation, which is clearly not a sustainable growth path.
On a sector basis, growth was recorded in just a handful of areas. Manufacturing barely managed to expand, growing 0.6% year on year, continuing the slowdown seen throughout 2014.
PMI numbers in the first quarter of this year suggest a more negative set of figures will be the norm this year.
Reversal of fortune remains unlikely
Needless to say, the fourth quarter’s surprise has not made us any more positive on the outlook for 2015.
Barring a complete political reversal and removal of sanctions, or strong recovery in the price of oil, prepare for a significant contraction of activity this year.
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.