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Russia’s growth surprise fails to brighten outlook

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Craig Botham, Emerging Markets Economist at Schroders, comments on recent Russian GDP figures and what he expects for Russia's economy in 2015…

The Russian economy put in a better than expected performance in the final quarter of 2014, with GDP growing 0.4 per cent year on year against consensus expectations of 0 per cent growth.

The Q4 growth was lower than the upwardly-revised previous quarter’s 0.9 per cent 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 per cent. 

Looking at an expenditure breakdown of the GDP data, what growth there was came entirely from household consumption, which managed to expand 1 per cent year on year, up from 0.2 per cent 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 per cent year on year, continuing the slowdown seen throughout 2015. PMI numbers in the first quarter of this year suggest a more negative set of figures will be the norm this year.

First quarter data in 2015 has been poor, to say the least. Inflation continues to climb (now running at almost 17 per cent) 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.

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.
 

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