Russian year-end data show no relief in sight for the contracting economy

RosStat has published December 2015 and cumulative activity indicators for the Russian economy that portray an ongoing and relatively severe contraction of the economy. Industrial production in December fell 4.5% year on year (y/y), the steepest decline in any month in 2015, and cumulatively in 2015 industrial output was 3.4% lower than in 2014. This was the first annual decline in industrial production since the global recession of 2009 when Russian industrial production fell by 10.7% y/y. The shortfalls in 2015 were the most severe in manufacturing with output down 5.4%, followed by the utilities branches with output 1.6% lower y/y. Only natural resource extraction experienced any growth in output in 2015, at a mere 0.3%. Within manufacturing, the steepest downturns in production were reported by textiles and apparel, footwear and leather products, general machinery and equipment and transport equipment. Growth in output for the full year was reported by chemicals, food products and petroleum refining.

Other sectors of the Russian economy fared little better than industry. Construction activity was only 1.5% lower y/y in December but cumulatively in 2015 it was down by 7.0%. This corresponds with a reported decline in expenditures on fixed investment in the economy by 8.4% y/y for 2015. The trade sector fared even worse. In real terms, retail trade turnover declined by 15.3% y/y in December and was 10.0% down in the full year. This resulted from the painful reduction of the average wage and real disposable income. In December, the average monthly wage was down 10.0% y/y and on average in 2015 it fell by 10.5% earlier y/y. A survey-based measure, real disposable monetary income of the population was down by 4.0% y/y in 2015. This reflected both the rapid consumer price inflation recorded in 2015 at 15.5% on average (although the y/y rate fell to 12.9% by December due to the higher base of comparison a year earlier) as well as the situation in the labour market. Although the unemployment rate in December was still only 5.8% of the economically active population, this figure does not take into consideration that many employers are cutting wages, putting employees on reduced hours, or furloughing them in order to preserve profit margins.

Outlook and implications

The most recent data release by RosStat demonstrates that rather than having turned a corner in the third quarter, the Russian economy is still deep in a recession. Moreover, with the most recent downward pressure on global oil prices and the rouble, there is even less hope that a turnaround is likely in the next several quarters. Although the first estimate of developments in GDP in the full year is not due to be published before 2 or 3 February, a RosStat spokesperson announced on 25 January that GDP had declined by 3.7% y/y in 2015. If the data for the first three quarters of the year is not substantially revised, this implies that GDP in the fourth quarter of 2015 was also down by 3.7%. While this was less of a relative decline than the 4.6% registered in the second quarter or the 4.1% in the third, it is being measured against the fourth quarter of 2014 when the oil price and the rouble took a major hit. We are currently projecting that Russian GDP will fall by a further 1.1% in 2016 with a very modest recovery at 0.8% seen for 2017. The December figures have given us more confidence in the forecast of a substantial further contraction of the economy in the course of 2016.