Category Archives: Ruble

16/5/16: 1Q 16 GDP growth and other recent stats on Russian Economy


Russian GDP (preliminary estimate) shrunk 1.2% y/y in 1Q 2016, with the rate of contraction in the economy moderating from 3.7% for the full year 2015 and from 3.8% drop recorded in 4Q 2015. So the economy is still shrinking, albeit at a slower pace, and slower, yet, than consensus annual forecast for the decline of 1.7%.

Some interesting developments on inflation front too.

April CPI was up 0.4% m/m and 2.5% y/y which is well below m/m and y/y inflation recorded in April 2015 at 0.5% and 7.9%, respectively. Food inflation was running at 5.3% y/y in April 2016 against 21.9% registered in April 2015. January-April 2016 y/y inflation in food prices was 'only' 6.5% which compares against 22.2% inflation in food prices registered in January-April 2015. HICP inflation for April 2016 was 7.6% y/y and January-April 2016 period HICP inflation was 8.8% y/y, against corresponding figures for April 2015 and January-April 2015 at 17.5% and 16.6%, respectively. Amongst food products: Meat and poultry (-0.2% y/y for the first four months of 2016), Sugar (refined) (-0.2%) and Fruit & Vegetables (-1.9%) registered deflation in prices over the first four months of 2016 compared to 2015. During the corresponding period of 2015, all categories of food products registered double-digits inflation.

Consumer price index evolution in 2015 and 2016 by month
Source: State Statistics Committee http://www.gks.ru/

Trend toward much more subdued inflation continued in the first ten days of May 2016, based on preliminary data.

Meanwhile, imports substitution policies are starting to finally show some positive payoffs (albeit, helped heavily by massive ruble devaluations of the recent 18 months):

  • Beef production rose 4.34% in 2015 compared to 2010-2013 average;
  • Pork production was up massive 73.6%
  • Meat products are up 18.8%
  • Fish & sea food however shrink 5.82% in 2015 compared to 2010-2013 average;
  • Milk and milk products output was up 5.99% in 2010-2013 average.

22/4/16: Russian Economy: Renewed Signs of Pressure

Earlier this week, I posted my latest comprehensive deck covering Russian economy prospects for 2016-2017 (see here: http://trueeconomics.blogspot.com/2016/04/20416-russian-deck-update-april-2016.html). Key conclusion from that data was that Russian economy is desperately searching for a domestic growth catalyst and not finding one to-date.

Today, we have some new data out showing there has been significant deterioration in the underlying economic conditions in the Russian economy and confirming my key thesis.

As reported by BOFIT, based on Russian data, “Russian economy has shrunk considerably from
early 2015. Seasonally adjusted figures show a substantial recovery in industrial output in the first three months of this year. Extractive industries, particularly oil production, drove that growth with production in the extractive sector rising nearly 3.5 % y-o-y. Seasonally adjusted manufacturing output remained rather flat in the first quarter with output down more than 3 % y-o-y.”

As the result, “the economy ministry estimates GDP declined slightly less than 2% y-o-y in 1Q16. Adjusting for the February 29 “leap day,” the fall was closer to 2.5%.”

Meanwhile, domestic demand remained under pressure. Seasonally adjusted volume of retail sales fell 5.5% y/y and is now down 12% on same period in 2014. “Real household incomes contracted nearly 4% y-o-y. Driven by private sector wage hikes, nominal wages rose 6 % y-o-y, just a couple of percentage points less than the pace of 12-month inflation.”

A handy chart:


Oil and gas production, however, continued to boom:



What’s happening? “Russian crude oil output was up in January-March by 4.5% y-o-y to record levels. Under Russia’s interpretation of the proposed production freeze to January levels, it could increase oil output this year by 1.5‒2%. The energy ministry just recently estimated that growth of output this year would only reach 0.5‒1%, which is quite in line with the latest estimate of the International Energy Agency (IEA). However, Russia’s energy ministry expects Russian oil exports to increase 4‒6% this year as domestic oil consumption falls.”

It is worth noting that the signals of a renewed pressure on economic growth side have been present in advanced data for some time now.

Two charts below show Russian (and other BRIC) Manufacturing and Services PMIs:




Both indicate effectively no recovery in the two sectors in 1Q 2016. While Services PMI ended 1Q 2016 with a quarterly average reading of 50.0 (zero growth), marking second consecutive quarter of zero-to-negative growth in the sector, Manufacturing PMI posted average reading of 49.1, below the 50.0 zero growth line and below already contractionary 49.7 reading for 4Q 2015.

Russia’s composite quarterly reading is at 49.9 for 1Q 2016 an improvement on 4Q 2015 reading of 49.1, but still not above 50.0.

In simple terms, the problem remains even though its acuteness might have abated somewhat.

19/3/16: Danske’s forecasts for Russia: Mild with little chance of a surprise


Danske’s latest forecasts for Russia are out this week. In contrast to 2015 forecasts, Danske is now running a relatively moderately bearish outlook on Russia. Remember, Danske forecast - as late as of September 2015 - the Russian GDP to shrink 6.2% y/y in real terms (it ended the year with a decline of 3.7%), while projecting USDRUB exchange rate at 72-74 for 3mo-12mo horizon (it is now at around 68.1 and the bank’s new forecasts are for 62.2-66.4 over the next 3mo-12mo horizon).

Per latest, “The path of economic contraction continues to slow. GDP shrank 2.5% y/y In January 2016 versus a 3.5% y/y fall in December 2015. We expect the economy to shrink 2.1% y/y in 2016 if the crude price stays at USD31/bl on average, while we would expect expansion to happen if the oil price climbs to USD59/bl on average.”

Overall, Danske’s view is that supply side of growth equation is now close to / already in expansionary territory, while demand (and investment) sides are both still struggling.



Problem is, this imbalance should be leading to rapidly declining inflation. In part this is starting to show through. As noted by Danske team: “Inflation eased to 8.1% y/y in February, from 9.8% y/y in January, as prices already included the RUB devaluation and the high base effect is weighing on the CPI. We expect 2016 inflation to stay single digit, posting 8.1% y/y in December 2016.”

With this in mind, table below shows Danske’s forecasts summary


At -2.1% for 2016, this is a relatively moderate forecast, at the lower end of the forecast envelope for the consensus, but not low enough to raise eyebrows as with their 2015 outlook. CPI forecasts at 8.1% for 2016 is probably realistic, whilst 5.8% forecast for 2017 is quite likely to go unmet, given upside to growth penciled in and M1 expansion estimated at 9.3% and 10.2% in 2016-2017.

Overall, not that far off from my own expectations for the year, though Current Account surplus is, in my view, more likely to come in at around 3.5-3.8 percent of GDP.

The key to the above is the headline GDP figure (weak and likely to remain weak for some time into 2016) and external balances (strong and likely to remain such into 2016-2017). The economy is struggling to gain the elusive recovery footing, but it is also paying for itself.

23/2/16: Moody’s on Russian Banks & Ruble


A recent Moody's report on Russian banks makes an interesting point, linking capital buffers in the banking system to ruble valuations

Per Moody's: "We expect Russian banks' capital ratios and loan performance to bear the brunt of the country's falling currency and economic contraction. We also envisage a detrimental impact on bank profitability as rising problem loans will likely lead to higher loan-loss provisioning expenses for banks."

The rouble dropped a further 3% in January 2016, after falling 23% versus the dollar in the second half of 2015. At the same time, the Russian economy contracted by 4% real GDP for 2015 and Moody's forecasts further GDP contraction of at least 2% in 2016.

By Moody's estimate, "close to a third of the banking sector's loan book is denominated in foreign currency and the falling rouble will likely inflate the value of these loans in the calculation of risk-weighted assets (the denominator of the capital ratio) pushing it higher and, consequently, capital ratios lower. Without accounting for additional loan growth, a 10% rouble devaluation could lead to a 30 basis point negative impact on capital ratios..."

This is not as dramatic as the headline risks occupying Moody's, but material. Worse, this risk is coincident with the broader recessionary pressures on Russian banks. Thus, "Moody's expects the recession, with the added burden of currency depreciation, to lead to rising problem loans for Russia's banks. The rating agency estimates the stock of nonperforming and impaired loans in the banking system to rise to 14%-16% over the next 12 months, from an estimated 11% as of year-end 2015."

The third coincident factor is the Central Bank policy space: "Currency depreciation may also prevent the Central Bank of Russia from lowering its key interest rates (currently at 11%), which sets the benchmark and influences the rates which banks pay for customer deposits and the rates at which they borrow on the interbank market."

Final pressure point for the banks is deposits composition "...if corporate and retail depositors decide to protect themselves from the falling currency and switch to FX deposits. Trends so far show rouble deposits stagnating while FX deposits have increased. The percentage of FX deposits to total deposits rose to 39% as at end of December 2015, compared to 29% as at end of March 2014."

March-December comparative is significant, as it sheds some light on longer term trends beyond December 2014 - March 2015 period when forex deposits of major corporates were driven down on the foot of Moscow urging de-dollarization of the deposits base, reducing cash reserves held in forex to January 2015 levels.