Preliminary data indicated that Russia’s GDP growth contracted 3.7% y/y in 2015, as compared with 0.6% y/y growth in 2014. The economic contraction path continues to decelerate. In January 2016, the economic growth contracted 2.5% y/y, as compared with December’s fall of 3.5% y/y.

“We expect the economy to shrink 2.1% y/y in 2016 if the crude price stays at USD31/bl on average, while we would expect expansion to happen if the oil price climbs to USD59/bl on average”, says Danske Bank.

In Q3 2015, Russia’s supply-side indicators touched the bottom, whereas recovery prospects continue to be very fragile as Brent oil price average year to date is still under USD35/bl. However, oil production reached its post-Soviet high, reaching almost 11m bpd. According to the seasonally adjusted data, industrial production expanded 0.3% m/m in January 2016, whereas construction contracted 1.5% m/m.

Private consumption growth remained negative as inflation is high, real disposable income is contracting and purchasing power for imported goods has declined considerably. Food inflation is slowing because of the high base effect, but it weighs on private consumers. Meanwhile, the Bank of Russia maintained its key interest rate unchanged at 11%. In February, inflation decelerated to 8.1% y/y from January’s 9.8% as prices already included the ruble’s devaluation and the high base effect is weighing on the CPI.

“We expect 2016 inflation to stay single digit, posting 8.1% y/y in December 2016”, says Danske Bank.

The Russian ruble continues to be the best play amongst oil producers on an increasing oil price. However, the RUB has moved closer to its equilibrium levels, as its appreciation has been subdued.

“We continue to be bullish on the RUB in the long run, as the free float is protecting Russia’s current account surplus and economy despite probably another year of a slump”, says Danske Bank.

Easier monetary policy, higher oil price and expansionary fiscal policy before the parliamentary elections in autumn are the possible risks on the upside to the macro outlook. However, the sanctions are not expected to be revoked. Meanwhile, declining oil price and increase of geopolitical issues are the downside risks to Russia’s GDP growth forecasts.