2016.05.1711:39:00UTC+00Russia’s Economy Contracts Less Than Forecast in Q1

Russian economy springs surprise, shrank annual -1.2% in the first quarter, less than forecast for a decline of -2.0%, the Federal Statistics Service said on Monday. This is the slowest contraction since the decline began in 2015, and compared to a decline of -3.8% in the previous quarter. Data points towards positive growth momentum in the quarters ahead.

Energy remains the lifeblood of the Russian economy, with Russia being one of the world’s biggest oil exporters. Recovery in oil prices in recent months has definitely helped in the better GDP growth (note: oil yesterday traded at its highest levels since November of last year).

"While the dynamics are somewhat positive for the RUB in the short term, they will also give CBR more room to cut rates, perhaps even more aggressively than markets currently discount. For the record we think CBR will cut rates at the June meeting by 50 bps. If the data continue to print as they have done lately the risk is that CBR do more rather than less." said Commerzbank in a report.

The Economy Ministry predicts that the annual contraction will slow to 0.2 percent from 3.7 percent in 2015. While the central bank is more pessimistic, forecasting a drop of as much as 1.5 percent, it says quarterly GDP growth may return in the second half of this year or in early 2017.

“The acute phase of the crisis is now over. But even so, given the numerous headwinds facing the Russian economy, we still expect the recovery to be disappointingly weak." said Liza Ermolenko, an analyst at Capital Economics.