Russian economy may be exiting long recession

Cars pass by the Moscow  business district "Moskva-City" © Anton Golubev
Bloomberg economists expect the Russian economy to emerge from its worst recession in two decades. Rising volumes of rail cargo and container transportation, as well as increasing demand for electricity, indicate that the recovery is likely to hold.

The country’s gross domestic product in the second quarter of the current year will contract the least since the beginning of 2015, when the economy slipped into recession, according to the experts surveyed by Bloomberg. The GDP will reportedly shrink just 0.8 percent from a year earlier.

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“A fundamental infrastructure sector such as electricity offers a good reference point for the economic health of a country overall,” said Vladimir Sklyar and Anastasia Tikhonova, analysts at Renaissance Capital.

According to the experts, an upsurge in orders in the sector this year shows that Russia’s economic players are more confident than a year ago, as significant payments take a long-term positive view on economic trends.

Annual profit in electricity demand climbed by 1.8 percent in July compared to 1.6 percent a month earlier, and 0.4 percent in May. Rail cargo volumes in the first seven month grew by 1.8 percent compared to last year, while the transport of building supplies rose by 19 percent.

The better perspectives are boosting demand for Russian assets, with the country’s currency growing 4.8 percent against the dollar during the last quarter. The Russian ruble was the best performing emerging market currency after the Brazilian real. Ruble volatility declined to its lowest in two years, with demand for ruble bonds exceeded supply at an auction on Wednesday.

The moderate recovery of the Russian economy will spread into the second half, according to Uralsib analysts.

“The recovery remains fragile due to downside risks associated with the oil price, sluggish growth in the US, Brexit and the risk of economic crisis in China,” said Uralsib economists Alexey Devyatov and Olga Sterina.

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The central bank expects GDP to expand by 0.4 percent in the third quarter from the previous three months, with no additional shocks projected.