© William Jackson
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Experts point out expanding manufacturing electricity output and growing rail cargo volumes as early indicators of an impending industrial revival in Russia. In your opinion, what is the possibility for the country to recover from the two-year-long recession and what would be your forecast for GDP growth in the third and the fourth quarters?
I think there are already signs of an industrial recovery in Russia. In fact, industrial production expanded in year-on-year terms in the second quarter of this year; though more generally, it seems to be the only sector of the economy that really shows signs of improvement. In part, that may be related to some of the import bans in Russia; however, I think, more importantly, a weaker Ruble has boosted the competitiveness of Russian industry. It is clearly not expanding very strongly, but it is in the positive territory before most other sectors of the economy.
Still, overall, we do not expect significant improvements in Russian economy, partly because consumers are likely to remain under pressure: retail sales fell by over 5% year-on-year in the second quarter, inflation still remained high and there was a slack in the labour market. What is more, we do not see a marked strengthening of consumer spending. On top of that, the construction sector is very weak; output there has actually worsened in the second quarter. Nevertheless, I think we may see a return to positive growth, perhaps, in the Q3 and Q4 with growth of around 0.5-1%. Though growth there is not going to be very strong, it will be certainly weaker than previous recoveries of Russia from recessions.
The Russian Ruble was found to display a weaker dependency on oil price movements during the recent trading sessions, namely, the Ruble depreciated less than oil prices. From your point of view, what factors can explain their diminishing correlation?
I would be cautious about reading too much into apparent decreasing correlation between the Ruble and oil prices. In fact, the correlation has been pretty strong for the past few years. Every now and then, they seem to diverge, but they converge again pretty quickly. I think that oil prices will continue to be the main determinant of movements in the currency.
The fresh data from the Federal State Statistics Service reveals that the consumer price index gained 7.2% in July compared to 7.5% in the previous month. Consequently, the analysts forecast an interest rate cut in September based on inflation statistics. To your mind, how likely is such a decision?
Our forecast is that the Central bank will cut interest rates in September. There will be one more inflation reading out before that meeting, and, clearly, the ultimate decision may depend on that and it may depend on what happens to the currency as well. However, our sense at this stage is that as long as the currency does not fall sharply, inflation should continue to decline towards the rest of the year, making the Central bank more comfortable to ease monetary policy.
What is your forecast for USD/RUB and EUR/RUB currency pairs till the end of 2016?
We see the Ruble at 69 against the Euro at the end of this year. As concerns the USD/RUB currency pair, we expect it to trade at 66 by the year end. Our oil price forecast is essentially flat to the rest of this year and that feeds into our Ruble forecast.