Russian moves deeper into recessionary territory – ING

FXStreet (Barcelona) - Dmitry Polevoy of ING, shares the key highlights of Russia’s January data release, and further provides the GDP, inflation and rate forecasts.

Key Quotes

“Rosstat released its macro data for Jan-15 yesterday. Key highlights are the following:

real disposable incomes dropped by only 0.8% YoY (consensus -6.8%, INGF -9.3%, previous revised from -7.3% to -6.2%), while real wages plunged by 8% YoY (consensus -6.1%, INGF -6.3%, previous revised from -4.7% to -4%);

unemployment rose to 5.5% (consensus 5.7%, INGF 5.8%, previous 5.3%);

retail sales fell by 4.4% YoY (consensus -1.9%, INGF -2.0%, previous +5.3%), while services consumption was up 0.9% YoY vs 1.9% in Dec-14 (no consensus/INGF);

fixed capital investments extended its decline to 6.3% YoY (consensus -7.2%, INGF -7.5%, previous -2.4%).”

“bottom line is that the economy has likely moved further into recessionary territory. The only positive is that the falling domestic demand will likely restrain underlying inflationary pressure, which could be seen in slower MoM price increases going forward, even though annual inflation rates will continue their uptrend for some more time in 2Q- 3Q15.”

“All these will likely make the CBR more comfortable with its shifting focus to economic growth, even though critics will continue referring to the rising negative gap between the current policy rate and current inflation (wrongly, in our view, as one should use expected inflation in the real rate calculation).”

“We expect GDP to contract by 3.9% in 2015 before stagnating in 2016, while inflation is seen at around 13% in Dec-15 and then down to 7% in 1Q16 and to below 5% by mid-2016.”

“We thus reiterate our call for the CBR key rate falling to 14% in 1Q15, 13% in 2Q15 and then to 9% by end-2015.”