Against a backdrop of improving global growth, Russia’s economy has remained in recession in the third quarter of 2016, with non-tradable sectors being the main driver of the GDP contraction. However, the pace of contraction has slowed somewhat relative to early 2016, as tradable sectors supported GDP growth and the contraction in construction decelerated.
In October, industrial production (led by manufacturing) strengthened somewhat, but retail trade continued to contract—suggesting that private consumption is further retrenching, driven by faltering incomes and mixed labor market dynamics.
The world oil-price increase observed since end November (as a result of the recent agreement reached by OPEC to cut oil production starting January 2017) has had an appreciation impact on the ruble, partly offset by a simultaneous tightening in global financial conditions (linked to the US monetary policy).
The combined impact of lower oil revenues and expectedly rising primary spending is likely to take a toll on the fiscal accounts, which are projected to end 2016 with a deficit of 3.7 percent of GDP (relative to 2.4 percent in 2015), even after the government’s largest privatization deal for the year (Rosneft) is taken into account.
The financial sector seems to have stabilized, although the level of NPLs remains high, and private sector lending is retrenching.