Russia continues to face the oil price challenge

The Russian economy contracted 0.6% year-on-year in the second quarter of 2016, in line with our forecast but a better performance than expected by the market. The number is also an improvement on the first quarter reading of a 1.2% contraction.

As this is an advance reading, there is no breakdown available so the drivers of the improved performance can only be inferred from higher frequency data.

Weaker currency helpful

Industrial production has expanded throughout the quarter in year-on-year terms as it recovers from low levels. This has likely been helped in part by a weaker currency; exports are on an improving path, though still down year-on-year. Retail sales are still anaemic, with the consumer facing headwinds from high unemployment, so consumption is unlikely to have been particularly strong.

Gradual recovery

The outlook from here remains one of gradual recovery, recent oil price weakness notwithstanding. We expect positive year-on-year growth by Q4 this year, and a positive overall growth performance in 2017, though still muted. The worst of the oil price crash effects may be over, but Russia’s economy needs to address structural imbalances if it is going to grow strongly in a world of cheaper oil.

Renewed hostilities with Ukraine

I think at this point the macroeconomic impact is zero. Depending on how events unfold it could harden European attitudes towards Russia and result in diminished hopes on sanctions ending, but it’s really too soon to say.


Craig Botham is an Emerging Markets economist at Schroders

Jonathan Boyd
Editorial Director of Open Door Media Publishing Ltd, and Editor of InvestmentEurope. Jonathan has over two decades of media experience in Japan, Australia, Canada and the UK. Over the past 17 years he has been based in London writing about funds and investments. From editing the newsletter of the Swedish Chamber of Commerce in Japan in the 1990s he now focuses on Nordic markets for InvestmentEurope. Jonathan was awarded Editor of the Year at the Professional Publishers Association (PPA) Independent Publisher Awards 2017. Shortlisted for the same in 2016, he was also shortlisted in 2017 and 2015 for the broader PPA Awards category Editor of the Year (Business Media).

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