Russia: GDP in Q2 accelerates to fastest pace in nearly four years - Wells Fargo

Analysts from Wells Fargo, expect the Russian economy to continue to improve through the end of 2018 as growth rebounds from the 2015-2016 recession.

Key Quotes: 

“Real GDP growth in Russia climbed to 2.5 percent on a year-ago basis, topping expectations and marking the first print above 1 percent since the oil price slide began back in 2014. The past couple of years have been challenging for the Russian economy, as the plummeting ruble and skyrocketing inflation led to a rapid tightening in monetary policy and a severe recession. More recently, commodity prices and the ruble have stabilized, and inflation has receded.”

“This in turn has allowed the central bank to bring its main policy rate back down, helping to plant the seeds for the budding economic recovery that has taken root. Despite the recent acceleration, economic growth in Russia is unlikely to return to the 4 percent growth rates that Russia achieved in 2010-2012, let alone the 7 percent annual average growth rate that the country was able to rack up between 2003 through 2008. Still-low commodity prices, economic sanctions and a declining working-age population will likely weigh on capital and labor growth, restraining the nation’s capacity to sustainably increase production over time”

“A more stable ruble has helped bring inflation down from double digit growth rates in Russia. As a result, the central bank has loosened its grip on interest rates, helping to move monetary policy from a headwind towards a tailwind for economic growth. The turnaround has begun to gather momentum, as today’s real GDP print was the strongest since Q4-2013.”

“Our outlook is for the Russian economy to continue to improve through the end of our forecast horizon in 2018 as growth rebounds from the 2015-2016 recession. Secular trends, however, will likely prevent a further acceleration in the Russian economy that would allow a return to the supercharged growth rates of the past.”

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