Russia Economy in January 2015

The central bank hiked its benchmark interest rate in December to 17%, up from 9.5% in November, in an effort to limit currency depreciation and tame inflation. Nevertheless, the ruble depreciated sharply last month by 21% against the US dollar. In December 2014, the ruble reached its lowest value since December 1998 on the back of plunging export revenues and continued financial sanctions. Overall, the ruble lost more than 55% of its value in 2014. As a result, inflation hovered around 11.4% in December, up from 9.1% a month earlier.

Retail sales increased slightly in November to grow 1.8% y-o-y hovering below the 2% level since June 2014. In comparison, 2013 showed an average growth rate of nearly 4%. The unemployment rate increased to 5.2% in November from 5.1% in October, signaling the third consecutive increase after nine months of being either stable or declining.

Increasing inflationary pressures started to take their toll on the manufacturing sector, which reported a slowing down momentum in December for the first time in six months. The HSBC Manufacturing PMI registered 48.9 last month, down from 51.7 in November. The drop mainly reflects a slowdown in demand, job creation and inputs inventory. The survey showed input prices accelerating at their quickest rate since October 1998 together with the fastest rise in output prices in the series’ history (since January 2003). The services sector was no better than the manufacturing sector in December. The HSBC Russia Services PMI of December 2014 posted 45.8, up slightly from 44.5 in November. For the second month in a row, the survey showed that there are more firms anticipating a deceleration in business activities in the next 12 months than those expecting growth. Firms attributed their pessimism to economic instability, inflation, a difficult investment climate and the impact of sanctions.

As pointed out in December’s Monthly Oil Market Report, the situation of no positive breakthroughs in the geopolitical arena and an abating outlook of the country’s trade balance in 2015 will push down the GDP forecast. Indeed, this month’s GDP growth forecast is pared back to 0% in 2015, while the estimate for 2014 is unchanged at 0.3%.