Russian economy likely to remain in recession in 2016 as oil price outlook remains low

Russia's economic outlook continues to be bleak because of the prospect of continuously low oil prices. Following the drop in commodities prices, with oil prices dropping to the lowest level in over a decade, Brent crude is expected to be within the range of USD 30-40/bbl for the rest of 2016. This will not be enough for Russia's economic rebound momentum, particularly if both consumer spending and investment are expected to be relatively weak.

Russia's economy contracted 3.7% in 2015. Sharp decline in investment and domestic spending were the main reasons for the recession. Admittedly, final consumption shrank 7.9% y/y as consumer spending declined over 10%. Meanwhile, gross fixed capital formation fell 7.6% y/y and government consumption shrank just 1.8% on back of significant attempts of government to give support to the economy.

Meanwhile, in January, Russian retail sales' pace of decline slowed sharply to -7.3% y/y from -15.3% in December. However, this was mainly due to base effects. Also households' disposable income for January fell sharply 6.3% y/y, with real wage growth continuing to be in negative territory. The Russian government has less room to give fiscal stimulus and might also have to reduce spending when oil continues to be below the USD 50/bbl.

"Overall, we expect the economy to remain in recession for another year. Our forecast for 2016 GDP growth is set at -1.0%", says Rabobank.