Russia Economy in January 2016

The economy shrank 4.15% y-o-y in the 3Q15. This was in line with preliminary estimates, following a 4.65% drop in the previous quarter, final figures showed. Household consumption declined by the largest rate since the 4Q of 1998, posting a drop of 9.4% y-o-y, while government expenditures slightly dropped by 0.4% y-o-y. Gross Fixed Capital Formation (GFCF) saw another plunge, dropping by 8.1%. Meanwhile, exports decreased 1.9% y-o-y and imports fell 25.5% y-o-y.

Russia’s central bank kept its benchmark interest rate unchanged in December at 11.0%. The interest rate stood at 17.0% at the beginning of the year. The ruble depreciated 7.2% m-o-m in December. Its accumulated depreciation in 2015 amounted to more than 26%. Inflation continued to increase at high rates and posted a 13% y-o-y increase in December, marking the first rise in consumer prices below 15% in 2015. Meanwhile, the unemployment rate increased from 5.5% in October to 5.8% in November, its highest rate since April.

The downturn in Russia’s services sector deepened in December as business activity fell further, amid a decline in new orders. The services PMI dropped slightly from 49.8 in November to 47.8 in December. The index showed increases in the prices of both inputs and outputs, suggesting persistent inflationary pressures. Retail sales volume plunged 13.1% y-o-y in November, the sharpest drop since January 1999. The manufacturing sector showed similar behaviour to that of the services sector, with the manufacturing PMI posting 48.7 in December, down from 50.1 in November. Output and new business both returned to contraction territory in December, reflecting weak demand conditions, particularly from abroad. Industrial production fell 3.5% y-o-y in November, marking the tenth consecutive month of deceleration.

Russia’s GDP is estimated to have contracted 3.2% in 2015 while growth in 2016 is forecast at 0.3%.