S&P: Russia Faces A Second Year Of Economic Recession

S&P: Russia Faces A Second Year Of Economic Recession

Rusland
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A new wave of price declines for hydrocarbons and metals has undermined Russia’s prospects for an economic recovery this year, prolonging a recession that has spanned the past 18 months. Commodity prices tumbled again at the beginning of the year: The Brent oil price fell below US$30 per barrel in January, and although it has recovered somewhat, we believe spot and near-term futures remain under significant pressure as global oil production continues to outpace demand. Oil prices have also been highly volatile as the market searches for a new equilibrium.

A new wave of price declines for hydrocarbons and metals has undermined Russia’s prospects for an economic recovery this year, prolonging a recession that has spanned the past 18 months. Commodity prices tumbled again at the beginning of the year: The Brent oil price fell below US$30 per barrel in January, and although it has recovered somewhat, we believe spot and near-term futures remain under significant pressure as global oil production continues to outpace demand. Oil prices have also been highly volatile as the market searches for a new equilibrium.

The terms-of-trade shock is further depressing real income and domestic demand, while fiscal and monetary policies remain tight, focusing on macroeconomic stabilization rather than on boosting short-term growth. In light of these factors, we expect Russia's real GDP to decline by 1.3% in 2016, a downward revision from our previous projection (in October 2015) for marginally positive GDP growth of 0.3% this year. We have also lowered our growth expectations for 2017, to 1% from 1.8%.

Keypoints:• We expect Russia's real GDP to decline by 1.3% in 2016, which would mark the second year of negative GDP growth after a 3.7% contraction in 2015. We have also lowered our growth expectations for 2017, to 1% from 1.8% in our previous forecast.• Our updated macroeconomic outlook on Russia reflects the significant downward revision of our commodity price assumptions. We now expect the Brent oil price to average $40 per barrel in 2016, down from $55 per barrel in our September 2015 forecast, and $45 per barrel in 2017, down from $65 per barrel previously.• We expect Russia's imports to decline further in step with falling domestic demand, which would help mitigate the GDP decline and generate current account surpluses despite falling export revenues.• Despite a more competitive currency, we expect growth in Russia's export volumes to soften this year, given that hydrocarbons and metals dominate the country's exports and global demand remains subdued.