Russia’s macroeconomic situation has consolidated. After a 2-year recession, the Russian economy swung back into growth in fourth-quarter 2016, inflationary pressures dropped sharply allowing the central bank to ease monetary policy, the rouble has appreciated significantly over the past twelve months, and the government launched a major programme to consolidate public finances. In the light of this new environment, the rating agency Standard & Poor’s attached a positive outlook to Russia’s sovereign rating, suggesting that it could soon be upgraded to “investment grade” if the country’s macroeconomic situation continues to strengthen.
Exit from recession is confirmed
In fourth-quarter 2016, the Russian economy pulled out of recession as GDP rebounded by 0.3% year-on-year. For the full year, the economy contracted only 0.2%, after a 2.8% decline in 2015 (after revisions). Yet net exports were the only component that made a positive contribution to growth (1.5 percentage points), even though they slowed compared to 2015. For the second consecutive year, household consumption and investment declined, but at a much milder pace than in the previous year.
As to 2017, growth prospects are looking strong. Two factors are expected to fuel a rebound in economic activity: 1) the acceleration in household consumption, lifted by higher real revenues, and 2) an upturn in investment at a time of monetary easing. Given the sharp drop in inflationary pressures (prices rose only 4.5% yoy in March, down from 8% in the year-earlier period), the central bank managed to lower its key rates by 25 basis points (bp) in March, and is expected to continue along this path with a cumulative rate cut of 150 to 200bp over the full year to support growth.
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by Sylvain BELLEFONTAINE