Russia Economy - March 2017

In January, inflation reached its slowest rate of increase since June 2012 at 5.0% y-o-y. In February, inflation eased further to 4.6% y-o-y. The central bank remained determined to continue and sustain the downward trend in inflation, keeping its benchmark interest rate unchanged at 10.00% in February. This sent an important message to the market, confirming the expectations of notably lower inflation in 2017. The Russian ruble appreciated by 2.4% m-o-m against the US dollar for the third month in a row in February.

The services sector extended its expansionary streak for the 13th month in a row in February. The Markit Russia Services Business Activity Index posted 55.5 points in February. However, the sector stood short of the previous month’s growth, which was the fastest since before the Great Recession. Reflecting strong performance in the services sector, together with slowing inflation, retail sales continued dropping in January, though by the least since the beginning of 2015. Retail sales declined by only 2.3% y-o-y in January 2017 compared to an average drop of 5.2% y-o-y in 2016.

The manufacturing sector registered growth for the seventh consecutive month, according to the Markit Russia Manufacturing PMI. However, the index reading of 52.5 in February was lower than January’s sixyear high of 54.7 and the lowest in four months on slower increases in production, new business and employment. Still, February’s reading is well above the index average, since it was first published in January 2012. Actual data regarding industrial production seems to be very much in line with the conclusions of the manufacturing PMI survey. Industrial production increased by 2.3% y-o-y in January, extending a series of expansions started in February 2016. February’s rate of expansion is the third highest in the indicated period.

The economy of Russia seems to be in reasonable shape and is heading towards expansion territory in 2017 following two years of recession which brought the GDP down to nearly 4Q11 seasonally adjusted levels. GDP growth is projected to be at 1.0% in 2017. The recent extension of positive indicators created more room for an upward revision in the coming months.