Originally appeared at Forbes
Russia’s economy is still contracting, but the recession will end in 2016 if oil stays steady-to-higher from where it is now, Barclays Capital said on Thursday.
Russia’s economy was whacked with the double whammy of falling oil prices and Western sanctions, now into their 16th month. Third quarter GDP fell 4.1% from the same period last year, which is better than the 4.6% decline in the second quarter. Russia’s third quarter GDP also beat consensus forecasts.
BarCap analyst Daniel Hewitt said he was retaining his forecast of a 4% contraction in GDP this year, but said the recession will end next year providing global oil prices reverse current trends and start to increase. Despite Russian equity beating the MSCI MSCI +% Emerging MarketsIndex this year, few will want to chase Russian stocks on the way down if oil were to fall below $40 a barrel. January futures are dangerously close, at $43 per barrel. The market expects oil prices to remain relatively stable, rising no more than $10 a barrel over the next two years.
Russia’s parliament released their 2016 draft budget last month, but it is based on a dangerously high oil price of $50 per barrel next year.
The contraction in industrial activity lessened, but the services sector continued to suffer from falling consumer demand. Most of this is due to high inflation of around 15%. Credit growth slowed too while the central bank continues its efforts to limit the systemic risk in the banking sector by providing funds when needed to banks with foreign debts. Moreover, Russia’s current account surplus shrank in the third quarter of 2015 due to lower energy exports. They are now faced with a primary deficit of 0.6% of GDP compared to a 2.9% surplus a year ago. Russia rarely has deficits.
Sberbank , Russia’s largest commercial lender, said it expects the debt burden on households to diminish next year regardless of sanctions and oil. Their base case assumes 12% nominal wage growth next year. It is likely that at some point next year, deleveraging will stop and households will start to borrow again, but at a lower rate.
Many segments of Russia’s economy saw a recovery in September. Seasonally and calendar adjusted industrial output and investments increased from August levels. But retail sales appear to have remained unchanged. The agricultural segment posted growth of 4% year over year thanks to sanctions banning import of some European foods.
Sberbank is calling a bottom.
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