Russia's GDP to decline by 1.3% by end-2016, household consumption to be a major drag

Preliminary estimates showed that Russian GDP contracted by 1.7%-2% in Q1, slightly better than expected. Industrial production increased by 0.4% m/m (seasonally adjusted). Some leading indicators such as freight turnover also suggest better than expected trajectory. However, Russia's economy is still in recession.

"We expect GDP to decline by the end of the year by 1.3% with household consumption being the major drag." said Nordea Bank in a report.

Household consumption will be a major drag in the coming years. Depreciation of the rouble in 2014-15, corresponding high inflation, declining real wage growth, increased unemployment and deteriorated lending conditions to be the major drivers for low household consumption.

"By the end of the year we expect household consumption to decline by 4%. This will still have a very negative impact on the GDP numbers as consumption accounts for more than half of GDP." adds Nordea Bank