A two-fold slowdown in the pace of decline in GDP in the second quarter of 2016 to 0.6% from 1.2% in the first quarter indicates a possible transition of Russian economy to the weak recovery, but at the same time, caused rather by the low base effect, consider otrashenie RIA Novosti experts and analysts.
Thursday Rosstat has published preliminary data on GDP dynamics in the second quarter, the statistics office estimated the economic decline of 0.6% in annual terms, which coincided with the Ministry of economic development of the Russian Federation. The economic development Ministry later reported that the decline in GDP in the second quarter with the seasonal factor cleared amounted to 0.2%, but during the quarter, the economic decline stopped.
Chief economist at Eurasian development Bank Yaroslav Lissovolik expects the transition of Russian economy to modest growth in the second half, but while maintaining stable oil prices — not below 45-50 dollars per barrel.
“The baseline scenario is shifting towards a gradual and slow but recovery. In the case of the positive scenario of oil prices at 50 dollars a barrel, I think we can go into positive territory by the fourth quarter of this year. It’s still a fairly low rate of growth, but I think the probability is of small advantage to the fourth quarter is becoming increasingly important,” says the economist.
The Minister of economic development of Russia Alexei Ulyukayev earlier said that the seasonally adjusted figures for GDP in the first quarter “was not positive”, but “it is so close to zero that to say that the economy could re-enter recession, which is not necessary.
Growth or not
“The improvement in annual performance is a consequence of the base effect, and not the beginning of a strong recovery. Monthly it turns out that GDP still fell in the second quarter compared with the first quarter. This basically means maintaining that the economy is still stagnating, rather than what we are seeing the beginning of a recovery,” — told RIA Novosti chief economist at ING in Russia and CIS Dmitry Field.
Leading researcher of the Center for economic and financial research, CEFIR) Alexei Devyatov also acknowledged that the low base effect has contributed positively to the GDP estimates, but still sees signs of some improvements in the economy.
“I think we are gradually seeing that the Russian economy is adapting and, apparently, in the second half will go to growth. I think that in the first six months we will see GDP growth. I think about 0.8% year-on-year will be in the second half,” he said.
In search of growth drivers
According to the Ministry, the situation in the Russian industry shows that there are preconditions for economic growth. Positive growth shows agriculture, financial activities and real estate operations.
According to Devyatova, positive changes in a number of manufacturing industries – food, chemical and light, as well as in the services sector can become a kind of drivers of growth of the Russian economy.
“I think that these two engines of growth will support us. Unfortunately, in terms of consumer demand and retail trade, while the situation remains dire. I think over time and this sector will catch up, but probably in the next year”, — the expert believes.
Senior analyst, group research and forecasting ACRES Dmitry Kulikov also points to positive signs in the export-oriented industries. However, he believes a more sustainable negative processes — the continued contraction in real incomes, investment and domestic demand.
“As a result of the struggle of opposing processes in the second half of this year we expect still more negative outcome, and recovery, most likely, will not start. Will contribute to that fiscal consolidation and real reduction in government spending,” said Kulikov RIA Novosti.
At current or lower oil prices in the second half of an ACRE will drop by more than 1% in annual terms.
Risks remain
Field does not see any obvious drivers that would allow the Russian economy to shift to stable recovery. “It is clear that we have passed or have reached a bottom, and from this point the traditional economy of any country start showing some recovery, but to say that we are confidently moving to a new model is pointless,” he said.
He indicates that the Russian economy still depends on external factors, primarily oil prices.
“Smooth, slow and small improvement is observed, but to say that the worst is behind us and ahead of us the strong recovery, not worth it. There are still many problems, there are many challenges – there is really a sector that feeling better, but still many sectors where the situation remains complex and unstable. And any more or less significant deterioration in the external factors can again kill all these first signs of hope at the beginning of the recovery,” he added.
I agree with him Lissovolik. “The situation continues to be dependent largely on the external background, in oil prices. Probably a few less than last year, because there is adaptation to the dynamics of oil prices. But in General, the risks of a repeat of what happened in the second half of last year — when towards the end of last year fell sharply, oil prices and economic performance has worsened — until you dismiss the impossible,” — he said.
