Russian economic growth continues to expand in Q1 2017, GDP to remain positive in near term

The Russian economy continues to gain momentum in the first quarter of 2017. The GDP grew 0.5 percent year-on-year. The headline figure bested the consensus expectation that anticipated for more modest 0.4 percent growth. This follows the 0.3 percent growth in the last quarter of 2016 and marks straight quarters of positive economic growth. Before the fourth quarter of 2016, the Russian economic growth was negative for eight straight quarters.

“We expect Russian GDP growth to remain positive in the near term and to expand 1.3 percent and 2.0 percent in 2017 and 2018, respectively”, noted Wells Fargo in a research report.

Meanwhile, inflationary pressures in Russia, gauged by the CPI, continue to ease. The consumer price inflation decelerated to 4.1 percent in April, the lowest pace of growth since May 2012. The core inflation index has also decelerated, coming in at 4.1 percent in April, lowest since index started in 2003.

Easing price pressures are expected to aid in boosting real wage growth that expanded 1.5 percent in March and have now risen for the eight straight months. Given the easing inflationary pressures, the Bank of Russia cut its main policy rate from a high of 17 percent at the beginning of 2015 to 9.25 percent now.

The Russian ruble strengthened at the beginning of this year, owing to the rebound in oil prices. As oil is Russia’s key export, the value of ruble traces the price of oil. However, against the backdrop of a U.S. Fed that is likely to hike rates further in 2017, and a likely accommodative Russian central bank, the ruble is expected to weaken modestly against the U.S. dollar, added Wells Fargo.