Seasonally adjusted data for third-quarter GDP by sector of origin show that GDP continued to decline through that quarter but at only half the rate in the first half of 2015.
IHS perspective | |
Significance | The Russian economy is still losing steam but the rate of deterioration has moderated. |
Implications | Although the contribution of agriculture in the third quarter might be a factor, there are some signs that aggregate economic output could level out soon. |
Outlook | IHS still expects GDP to decline by 4.0% in 2015 with a further modest downturn in 2016 before a protracted recovery sets in. |
The Russian Federal State Statistical Service (RosStat) has followed up a flash estimate of GDP growth in the third quarter with detailed data on developments in the individual producing sectors. This data includes seasonally adjusted series that are appropriate for quarter-on-quarter (q/q) analysis as well as unadjusted data that can illustrate year-on-year (y/y) changes. The unadjusted data agree with the flash estimate that overall GDP declined by 4.1% y/y in the third quarter compared to -2.2% in the first quarter and -4.6% in the second. Cumulatively in the first three quarters, GDP was down 3.7% y/y. The seasonally adjusted data provide a figure of -0.6% for the q/q change in GDP in the third quarter. This can be compared with a q/q decline of 1.2% in the first quarter and 1.3% in the second. Thus it would seem that the pace of contraction of the aggregate economy decelerated in the third quarter compared with the first half of the year. Among the various producing sectors, sharp downturns in value added q/q were recorded in the third quarter for real estate operations, public administration, construction, utilities and manufacturing. In contrast, there was notable q/q growth in value added in financial activity, transport and agriculture with lesser upturns for natural resource extraction and wholesale and retail trade. In fact, although GDP continued to contract q/q in the third quarter, total gross value added actually rose by 1.2% after q/q declines of 4.9% in the first quarter and 1.9% in the second.
Russian real GDP by sector of origin (RUR bil.) | |||||
Y/Y, % change | |||||
Q3 2015 | Q2 2015 | YTD | 2014 | Nominal share (2014) | |
GDP, total | -4.1 | -4.6 | -3.7 | 0.6 | |
Gross value added, total | -3.9 | -4.3 | -3.4 | 0.7 | 100.0 |
Agriculture | 2.1 | 2.1 | 2.2 | 1.5 | 4.0 |
Industry | -2.6 | -3.0 | -1.5 | 1.7 | 29.3 |
Extraction of natural resources | 0.8 | -0.1 | 1.8 | 0.7 | 10.3 |
Manufacturing | -4.3 | -4.8 | -3.3 | 2.5 | 15.6 |
Electricity, gas and water | -3.0 | -0.5 | -1.0 | -0.1 | 3.4 |
Construction | -8.0 | -6.9 | -6.8 | -5.1 | 6.5 |
Trade | -9.1 | -1.5 | -8.9 | 0.6 | 17.3 |
Hotels and restaurants | -4.5 | 6.8 | -5.6 | -2.0 | 1.0 |
Transport and communications | -0.9 | 10.8 | -1.8 | 0.3 | 8.7 |
Finance and insurance | -1.5 | -5.8 | -3.5 | 8.8 | 5.3 |
Real estate activity | -8.5 | 4.5 | -5.9 | 0.7 | 12.2 |
Public administration, defence and social security | -0.4 | 0.8 | 0.4 | -0.3 | 6.5 |
Education | -1.9 | -2.8 | -1.3 | -0.7 | 3.0 |
Healthcare | 0.0 | 6.7 | -0.1 | 1.0 | 4.1 |
Other services | -6.9 | 14.9 | -1.9 | -2.7 | 1.8 |
Net taxes on products | -5.6 | 5.9 | -5.4 | 0.1 | 16.9 |
Source: Federal State Statistics Service; non-seasonally adjusted | |||||
Turning to the y/y tends in unadjusted data in the table above, the sharpest downturn in the third quarter came in the trade sector. This was to be expected given the trends in the high-frequency data on real retail trade turnover and real wages and incomes. With the real wage down in the neighbourhood of 9% y/y in the third quarter, households cut back on expenditures and in real terms retail trade turnover was down by 9.5% y/y in that quarter. Two other sectors that exhibited a sharp contraction of activity y/y were construction where value added was cut by 8.0% and real estate activity with an 8.5% y/y decline. This also was not a surprise. Given a very tight credit market in Russia in the face of effective financial sanctions by the US and EU that have essentially isolated most Russian entities from raising capital abroad, mortgage lending has been sharply cut back and commercial construction projects have been deferred or cancelled. The contraction of fixed investment was to be expected given the increased uncertainty of the current general economic environment and its impact on confidence and expectations for supply-demand balances through the near term. The outstanding sector in the third quarter as it has been through the first half of the year has been agriculture which together with natural resource extraction were alone in posting growth in the third quarter and the first nine months of 2015 y/y. The third-quarter contribution of agriculture to overall gross value added is particularly important as in 2014, for example, more than 45% of value added in agriculture for the full year was contributed in the third quarter.
Outlook and implications
Official Russian spokespeople have been saying since early in the year that the worst of the economic crisis had passed. The sharp downturn in GDP in the second quarter of 4.6% argued against that conclusion. In the third quarter, with the y/y contraction moderating and the q/q contraction cut in half compared with the two preceding quarters, the argument that the trough of the recession could be near does seem to hold some water. Nevertheless, there is no evidence that a rebound is in sight and most analysts, even some official Russian forecasters, have concluded that the recession will be protracted and the recovery will be at a modest pace at that. Domestic demand remains in the doldrums and the data at the turn of the year on GDP by expenditure category will document that. The only positive contribution to GDP growth continues to come from net trade in goods and services and even that has been largely due to the drop in imports alongside domestic demand. IHS projects that GDP for the full year 2015 will decline by 4.0% and in 2016 there will be another decline, but far more moderate at 0.5-0.8%. A sustained rebound is likely to wait until the outset of 2017.