- We revise our 2015 GDP forecast to a 6.2% y/y fall from our previous -7.9% y/y forecast on better than expected Q1 15 preliminary GDP data, a dovish Bank of Russia (CBR) and better prospects for the oil price. We also raise our estimate for 2016 GDP growth to 0.5% y/y from the decrease of 0.8% y/y we previously expected. Our call is more pessimistic than consensus as we do not expect a sharp rise in the oil price nor an immediate recovery in fixed investment.
- We expect the Russian economy to expand moderately in 2016, as the oil price continues its slow recovery, and domestic production gets stronger and substitutes for falling imports. Thus, we expect the current account to see a surplus due to falling imports as the rouble floats freely.
- Upside risks to our macro outlook are a higher oil price, easier monetary policy and the revoking of sanctions, which would improve sentiment. We estimate that if Brent hits an average USD100/bl in H2 15, GDP would contract by less than 2% y/y, finding support from improved private consumption.
- We see the rouble as overvalued given the oil price, and expect USDRUB to converge to an average of 57.00, implying a 12% devaluation against the US dollar from the current level. This would result in the rouble being almost 40% weaker than in 2014 on average mostly due to the lower average oil price and high inflation.
- Geopolitical risk is another significant factor to consider. It could trigger a similar sell-off in the rouble to that seen in Q1 14 and Q4 14.
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