Russia GDP Q3 improved to -4.1% y/y from -4.6% y/y. This figure is only an advanced data as the preliminary GDP will be released in December. We clearly did not have high expectations for this quarter as the lingering low oil prices are still weighing on the Russia’s revenues. This is not likely to stop anytime soon as the barrel now holds below 42$. It is also very important to note that the correlation between the ruble and oil prices has never been so high. In addition, the greenback is worth a little over 65 rubles.
The pair is still driven upside by the stronger-than-expected last Friday’s NFP, U.S. December rate hike expectations and low commodities prices. On a monthly basis, we note that the Russian economic data are improving especially the manufacturing PMI, the industrial production and the overall investment.
We saw a deceleration in the contraction of capital investment. Nonetheless, retail sales and wages keeps on collapsing. For example, last retail sales showed a 10% m/m decline in October. Despite sign of hopes in a recovery, the economy is still facing difficulties in the consumption side. However, Russia’s economy is not in agony but inflation remains a serious concern.
This week, Russia’s consumer price index has risen by 0.2% for the fifth week in a row. Inflation does not show any sign of deceleration. Annual CPI should end up around 15%, which is seriously limiting the room for the Russian central bank to cut rates. Between very negative growth and high inflation, Russia is struggling. We believe that the key rate will hold at 11% at December meeting.