Is Russia bottoming out?

September 18
6:04 PM 2015

The latest data for August shows that Russia's economy is showing signs of slowing down. But the rate of decline is moderating, the real sector data is giving a sigh of relief as the worst conditions in the economy are softening, if not improving.

Real investments on yearly basis moderated from a negative -8.5 percent in July to -6.8 percent in August. The industrial output declined -4.3 percent in August from -4.7 percent in July, according to the latest data from Barclays Capital.

The bank sees improvement in domestic market profits are transforming into investments though it's very marginal, but a good sign for the ailing economy. 

However, economists caution that Russia has few alarming factors in the economy. Terming out Barclay's view too positive on Russia, economists say that based on the consumption data released on 17 September shows the adverse conditions that need to be addressed. 

Real wages dropped to 9.8 percent in August from 9.2 percent in July. Economists say that it was worst than market forecast. The drop in real wages is also impacting consumption spending and purchasing power in the domestic economy.

Barclays in its 2015 outlook forecasts growth potential in emerging markets including Russia, Brazil and Greece. Barclays views that Russia, Greece and Brazil are in correction territory. The bank also expects that Brazil may soon bottom out. 

Since the valuations attractive in emerging markets when compared with developed markets, there's more growth potential in those economies which bottom out very soon. However, Barclays also gives caution sign saying there could also be a chance of another bout of recession in Russia in 2016. Barclays was positive on India and Indonesia as these nations are expected to witness encouraging growth.

Two months ago, Barclays Bank froze the account of Russian news agency 'Rossiya Segodnya.' Without citing any reason, the UK's bank closed the account saying it was censorship. Market analysts view this development as part of economic sanctions on bestowed upon Russia.

Russia allegedly raised its voice against the freezing of bank account saying it's against freedom of press. There are restrictions imposed on several Russians in the European Union (EU). A number of Russians are facing restrictions on financial dealings and traveling to European nations. 

The unemployment rate remains flat, while retail sales were easing by 9.1 percent in August. However, the drop was not so steep when compared with retail sales in July. Economists observe that there could be further adjustment in consumption for the next quarter. 

Though real gross domestic product (GDP) is continuing to drop, the overall economic activity is showing signs of moderating losses. The GDP during the second quarter dropped two percent from the 1.6 percent fall in the first quarter. So the GDP drop was more on a quarterly basis. 

Barclays is optimistic that GDP performance in the forthcoming fourth quarter is expected to be better than the previous quarters. Though recession is still looming over the Russian economy, the fall is moderating. Barclays is of the view that Russian economy is bottoming out.

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