Russia Economy in July 2014

The country’s GDP posted growth of -0.5% q-o-q in 1Q14, while the yearly comparison showed growth of 0.9%. Retail sales in May grew by 2.1% y-o-y, the weakest rate since February 2010. Consumer price inflation posted a further increase in June to 7.8% from 7.6% a month earlier as shown by the Federal Statistics Service in Moscow. This is seen as the continued effect of the ruble’s devaluation prior to last month. Some de-escalation in the geopolitical situation, however, helped the ruble to appreciate 2.9% last month. The sellout of the latest government bond auction also lent support to the ruble. That said, inflation could slightly ease in July if the exchange rate remains stable.

The manufacturing PMI of June showed a continued downturn among Russia’s manufacturers for the eighth month running. The survey posted 49.1 in June, up from 48.9 in May. The PMI has contracted 11 times in the past 12 months. The survey highlighted a further fall in employment, a marginal deceleration in new orders and an increase in output, which is the first in 2014. June’s survey showed that the increase in new orders during May 2014 is temporary. On the positive side, inflationary pressures lessened last month as the recent strengthening of the ruble reduced pressure on import prices. Russia’s services PMI remained in contraction territory in June registering 49.8. This signals the fourth consecutive monthly deceleration in the services sector of the economy. Output showed a marginal fall while new orders stabilized.

The downturn seen since the beginning of the year seems to be extending to the second half of 2014. The manufacturing sector has shown signs of contraction for the past eight months. The services sector also declined from March through May. Capital outflow is now anticipated at $80 billion in the first five months of this year. The forecast for Russia’s GDP growth in 2014 is revised down this month to 0.5%, from the previous figure of 0.9%. 2015 is seen as bringing higher economic growth of 1.2%.