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Macroeconomic Consolidation

By BNP Paribas (Philippe d'Arvisenet)Market OverviewJul 10, 2017 07:11AM ET
Macroeconomic Consolidation
By BNP Paribas (Philippe d'Arvisenet)   |  Jul 10, 2017 07:11AM ET
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Russia’s macroeconomic situation has consolidated significantly in recent months. Real GDP growth accelerated to 0.5% year-onyear in Q1 2017, and the latest indicators point to an upturn in household consumption in early Q2 2017. The banking sector situation has stabilised since the end of last year, which should help support the recovery in H2 2017. Moreover, in the first five months of fiscal year 2017, the deficit narrowed sharply, thanks to higher oil and natural gas revenues and cutbacks in spending. The Russian authorities have also begun to rebuild the reserve fund, using surplus fiscal revenues, without placing a strain on the rouble.

In first-quarter 2017, Russian economic activity rebounded to 0.5% year-on-year. The main support factor was the upturn in investment, while household consumption continued to contract. Yet retail sales stopped declining in March, and even increased 0.9% year-on-year in April, while automobile sales rebounded by 5.1% year-on-year.

The upturn in private consumption was fuelled by the increase in real wages resulting from the net slowdown in inflation and the decline in the unemployment rate. In May, consumer prices rose only 4.1% year-on-year, compared with 7.3% in the year-earlier period. Yet the central bank esteems that inflation is close to a low point, and that it could reach around 4% at the end of the year.

At the same time, industrial output accelerated to 5.6% year-on-year in May, and business confidence indexes are looking upbeat in both manufacturing and services.

Non-financial corporates also consolidated their position over the course of 2016. On the whole, earnings increased nearly 38%. The strongest earnings growth was in manufacturing industry, notably in textiles and the production of machines and equipment. The number of corporate bankruptcies also levelled off at 9.9 per 1000 in February and March 2017, down from 19.1 per 1000 in December 2016. The easing of monetary policy enabled interest rates on rouble-denominated corporate loans to decline by 200 basis points over the past year, which should further consolidate the position of companies and support renewed investment.

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by Johanna MELK

Macroeconomic Consolidation
Macroeconomic Consolidation

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