Russia’s economic recovery likely to be L-shaped on further oil weakness

There is continued contraction in the Russian economy on an annual basis, dropping 3.7% yoy in October and from January to October 2015, vs -4.1% yoy in Q3 15, because of continuous weakness in oil price, the lagging effects of aggressive monetary policy, high inflation, risen capital costs and declining investment weigh on main macro indicators.

The supply-side indicators reached bottom in Q3 15 and the path of shrink is slowing down. In October, the seasonally adjusted data shows economic growth of 0.1%mom, while the positive dynamics(sa) were un-interrupted in past 4 months.

The settling down of economic turmoil is signaled by the monthly basis data, the economy is preparing for a take-off that is likely to be L-shaped rather than V-shaped, due to further weakness in oil and anticipations of cautious monetary easing while inflation risks prevail.

"We have raised our 2015 GDP forecast to -3.9% y/y, from the -6.2% y/y we released in May 2015, as economic contraction caused mainly by the oil price crash and aggressive monetary policy is turning out to be more limited than expected due to the introduction of the free float regime and the start of import substitution", says Danske Bank.