U.K.’s flash PMI indices indicate decline in business activity in November, composite index falls to 47.4
Russian economy to contract again in 2016, fundamentals to remain weak
In 2015, Russia’s economic growth contracted 3.7% y/y. The economy is being continuously impacted by economic sanctions by Europe and US, and by lower oil prices. According to World Bank, the Russian GDP growth is expected to be contracted by 0.7% in 2016.
Meanwhile, inflation pressures in Russia continue to decelerate. Inflation slowed to 8.1% in February. The Bank of Russia has maintained its key rates at 11% since July when it lowered by 50bp. However, central bank Governor Naiullina said the monetary policy will be tightened if needed.
Russia’s fiscal condition has worsened due to lower oil prices. Finance Minister Siluanov said fiscal expenditure should be lowered by 10% to cover a budget deficit if oil price averages USD 30 per barrel this year. Certain big state owned companies of Russia, such as Rosneft and Aeroflot might be privatized to offset the drop in revenues caused by decline in oil prices.
Officials of the country should keep a close watch on ruble as a weak currency might result in higher inflation and outflow of capital. According to Naiullina, the Bank of Russia is concerned regarding the increased FX market volatility and might intervene if there is a risk of financial instability.