Russia Economy in July 2015

GDP contracted 2.2% y-o-y in 1Q15, which was worse than the 1.9% decrease previously reported. This is the first decline since the last quarter of 2009, final data from the statistical office showed. Household consumption dropped 9% y-o-y, signaling its first shrinkage since 4Q09. Government consumption, on the other hand, only slightly fell by 0.1% y-o-y. The downturn in GFCF accelerated, dropping 8.8% y-o-y from a decrease of 1.2% in the previous quarter. The major support to GDP growth came from net exports which jumped by more than 53% y-o-y mainly due to the sharp cut in imports. Imports fell 25% y-o-y. On sectoral basis, manufacturing contracted 0.6% and construction decreased 4.1%. Among services, wholesale and retail trade shrank 7.6%.

On the upward side, there were mining, agriculture, hunting and forestry, public administration and military security, electricity, water and gas production, all of which increased. On a q-o-q seasonally adjusted basis, the economy contracted for the third consecutive period by 1.3%, confirming that a recession started in 4Q14.

Following three consecutive months of appreciation, the ruble lost 7.5% m-o-m of its value against the dollar. Having reached its peak in March, annual inflation fell to 15.8% in May from 16.4% in April. The annual rate of consumer price growth stood at 15.6% as of June 8, 2015. According to the central bank forecast, annual inflation will fall to less than 7% in June 2016 to reach 4% in 2017. The central bank lowered its benchmark interest rate by 100 bp to 11.5% in last month. It is the fourth straight cut as inflation slows and risks to growth persist.

The unemployment rate decreased to 5.6% in May from 5.8% in April. Real wages fell 7.3% in May after dropping by 9.6% in the previous month. Real disposable income shrank 6.4% after a 3.9% drop in April.

Operating conditions in the manufacturing sector continued to deteriorate last month. The manufacturing PMI of June showed another slowdown in activity for the seventh month in a row. The index stood at 48.7 from 47.6 in the previous month. The survey showed that production, new orders and job creation all slid somewhat in June. Price levels continued to increase. Manufacturing accounts for around 16% of Russia's economy.

The recession in Russia’s economy continued into the first three months of this year and is expected to persist for at least two more quarters as low oil prices and the impact of sanctions over the conflict in Ukraine have outweighed successive cuts in central bank interest rates aimed at spurring growth. Nevertheless, the significant cut in imports combined with way faster depreciation in the ruble compared to the rise in inflation have brought about a better-than-expected GDP figure. Real GDP is anticipated to contract 2.8% y-o-y in 2015, while the forecast for 2016 points to a growth of 0.9%. The Ministry of Economy forecasts that GDP will decline between 2.5% and 2.8% in 2015.