Document Type: Macro Monthly

Russia gains in World Bank survey. In a rare piece of good news Russia’s ranking in the World Bank’s Ease of Doing Business survey improved to 51 from 64 previously. That was partly because of changes to the survey methodology (expanded) and also because of improvements by Russia in such areas as the cost and time to access electricity supply.

Changing attitudes. President Putin had little new to say at the UN conference in New York, but subsequent events suggest that he got a lot of support on its sidelines. Russia and the US may finally have found a modus vivendi.

GDP bottoming out? The good news is that July saw a small increase in GDP relative to June. The bad news is that GDP in July contracted by 4.6% YoY, i.e. similar to the decline in 2Q. The data raises optimism that the decline has reached a bottom, albeit it is still far from a recovery.

GDP decline. Preliminary estimates indicate that GDP contracted by 4.6%  YoY in 2Q15 compared to a fall of 2.2% in 1Q15. This worsening trend is as expected. 3Q data will be just as bad if not marginally worse. However, this second and third quarter dip is still consistent with our forecast for a full year decline of 3.5%.

No going back. It is clear that the old growth model is gone forever. The question now pre-occupying businesses and investors is “what is the new norm?” and what does it mean in terms of future growth? In this month’s report we look at some of the possible routes forward.

Good start … but far from safe. The macro results for the first quarter were better than had been feared late last year. However, the trend in the current quarter is already worse and we are keeping our forecast for a 3.5% decline in GDP for the full year, with consumer‐related sectors expected to bear the brunt of the decline.

– Russia’s dollar denominated equity indices, up 23%, have been the best performing amongst major
markets since the start of 2015.
– Investors have bought stocks which were either amongst the worst performing last year or are in the
growth category. Mechel (+141% YTD) and Luxoft (+32% YTD) are respective examples.
– The key reasons include the rally in the oil price and the fact that heavy-weapons appear to be
withdrawn by both sides in eastern Ukraine. There are also other factors which have helped allow
optimism to rise, including two significant deals by US companies to acquire Russian businesses.

No support for politics at any cost. Opinion polls are starting to show declining public support for the Kremlin’s campaign to control eastern Ukraine. Only 19% of people now believe that the region should be a part of Russia compared to almost 50% last spring. Concern over the cost of absorbing the region and the economic consequences of the crisis now outweigh nationalist ambitions.

No support for politics at any cost. Opinion polls are starting to show declining public support for the Kremlin’s campaign to control eastern Ukraine. Only 19% of people now believe that the region should be a part of Russia compared to almost 50% last spring. Concern over the cost of absorbing the region and the economic consequences of the crisis now outweigh nationalist ambitions.