Economic Views

Big fall for Russian GDP in the first quarter

Russia's GDP contraction is better than expected but still represents a painful fall.


Craig Botham

Craig Botham

Emerging Markets Economist

Russia's pain not lost in GDP beat

Russian GDP contracted 1.9% year-on-year in the first quarter of 2015. Though better than expected, this is still a painful fall for any economy.

Further contraction seems inevitable given the lagged effect of monetary policy and the fiscal tightening underway.

Difficult to see recovery in 2015

As the data released today was only a flash estimate, there is no breakdown by industry or expenditure.

Looking at higher frequency data would suggest that consumption and investment dragged on growth for the quarter, with both contracting over 6% versus the first quarter of 2014.

Industrial production was also negative but performed better than expected, perhaps buoyed by rouble weakness.

For the rest of the year, it is difficult to envisage a recovery in either consumption or investment, given the weakness in real wages in the first quarter, and the structurally lower oil price.

Growth revision likely but Russia not out of the woods

The data has prompted policymakers in Russia to turn much more optimistic on growth prospects for 2015, and some revision of forecasts is probably warranted.

However, the extreme rouble weakness of the first quarter now looks to be behind us. The full impact of monetary and fiscal tightening is yet to be felt. And though oil has recovered it looks unlikely to rise to 2014 levels, limiting investment and earnings growth.

Warning lights might be improving for Russia, but only to shift from one hue of red to another, not from red to green.