The economy has absorbed the triple shocks of Western sanctions over the Ukraine conflict, the sharp decline in global oil prices and the equally sharp depreciation of the RUB which emerged in 2014 and caused a lasting recession in 2015-2016. Although sanctions have remained in place to date and oil prices are still well below the level in early 2014, signs of a gradual recovery have strength-ened.
A preliminary estimate indicates real GDP declined by -0.2% in 2016, after contracting by -2.8% in 2015. The breakdown of GDP shows that consumer spending decreased by -5% in 2016 (-9.8% in 2015), government spending -0.3% (-3.1% in 2015) and fixed investment -1.4% (-9.4% in 2015). However, inventory restocking added about +1.1pp to 2016 growth (-1.4pp in 2015). Further, net exports contributed +1.7pp to annual growth in 2016 as real exports increased by +2.3% (+3.7% in 2015) while imports declined by -5% (much improved from the
-25.5% collapse in 2015). Quarterly data are not available as yet but we assume that real GDP grew again in Q4 2016. However, only parts of the econ-omy are in recovery mode, for now. High frequency data suggest that industrial production and confi-dence in the manufacturing sector (PMI) seem to be firmly back into growth mode while consumer confi¬dence and retail sales are still in contraction mode (see Figure 2). We forecast full-year GDP growth of +1.3% or so in 2017 on the back of recovering investment and, with some delay, consumer spending. Base effects will also play a role as the level of annual GDP is now well below the pre-crisis level. The possibility of renewed global oil price weakening poses a downside risk to this forecast.