Russia: Deep recession in 2015 as domestic demand slumps
Preliminary estimates indicate that real GDP declined by -3.8% y/y in Q4 2015, taking the full-year contraction to -3.7%, as expected. The strongest downturn came in gross capital formation (-18.3%), reflecting a -7.6% fall in fixed investment and a sharp drop in inventories, which subtracted -3.3pps from full-year growth as companies sold off stocks in the wake of diminishing demand for their products. Private consumption contracted by -10.1% as households were hit by the sharp RUB depreciation, falling real wages and a reduction in working hours. Government consumption was down by -1.8%. Net exports somewhat mitigated the overall contraction, making a positive contribution of +6.7pps as real exports grew by +3.1% in 2015, as a result of the weakened RUB, while real imports fell by a marked -25.6%. The outlook for 2016 remains poor against a backdrop of renewed falls in oil prices and the RUB at the start of the year, although annual GDP is likely to decline at a more moderate pace because of base effects. Euler Hermes projects a contraction of -0.5% in 2016, but the possibility of very low global oil prices for longer poses a considerable downside risk to this forecast.
U.S.: Mixed labour market, weak trade and productivity
January’s employment report was mixed. Job creation of +151,000 was disappointing, lowering fears of a Fed interest rate hike but raising fears of a slowing economy. Conversely, a combination of falling unemployment, -0.1pps to 4.9%, and participation rate increasing +0.1pps showed strength, increasing fears of a Fed hike and lowering concerns of a slowing economy. EH expects one or two rate hikes in 2016, at most. Wages increased strongly, by +0.5% m/m in January but the y/y rate was consistent with the +2.5% average of the past six months. Manufacturing finally provided some good news, with an increase of +29,000 jobs, the most in 15 months. Meanwhile, the trade deficit widened to –USD43.4bn in December 2015 from -USD42.2bn in November. Exports, pressured by a strong USD and tepid global demand, fell by -0.3% m/m and -6.9% y/y to USD181bn and imports increased by +0.3% m/m to USD225bn, the first gain in four months, but still down -6.5% y/y. Weakness in Q4 2015 GDP was explained in part by productivity, which fell -3% q/q annualised (+0.3% y/y).
Canada: Fragmented jobs market, improved trade
The job market was soft in January as unemployment increased to 7.2% (from 7.1%), a gap of +2.3pps above the U.S., the largest since 2002. The economy lost -5,700 jobs and the details demonstrated that Canada actually has two economies. For example, services-heavy Ontario gained +19,800 jobs, while oil-heavy Alberta lost -10,000. Over the past year, the economy gained +125,000 jobs, but services gained +169,200 and goods lost -43,200. For all of 2015, only three of the ten provinces recorded significant job growth: Ontario +100,200, British Columbia +48,400 and Quebec +30,500. Alberta lost -35,000, while the other six provinces added a total of only +18,600. Meanwhile, the merchandise trade deficit in December 2015 improved significantly to –CAD585mn from -CAD1,587mn, as nominal exports increased by +3.9% m/m and imports gained only +1.6%, providing a boost to Q4 GDP. In real terms, exports increased by +3.2% y/y, with energy exports gaining +5.3% and non-energy exports +2.6%. However, as a result of weak oil prices, exports in nominal terms fell by -27% y/y.
Plans for constitutional amendments include stricter limitation on presidential terms, increased consultations over the appointment of the premier and adoption of the Berber dialect as an official language. A presidential decree at the end of January dissolved the DRS, the military intelligence organisation, previously seen as a key power broker. A complication with these changes, in addition to whether they will be implemented, arises through the continuing health concerns relating to President Abdelaziz Bouteflika. Indeed, Bouteflika has not been seen in public for two years (see also WERO 19 November 2014). Political uncertainty is compounded by current significantly reduced oil earnings and heightened security concerns. However, international reserves remain around USD160bn (down from almost USD200bn in mid-2014) and these provide import cover of over 28 months. This financial cushion provides a degree of comfort in relation to repayment obligations and commercial transactions but large fiscal and current account deficits and succession concerns require careful management.