RUSSIA'S POSITIVE SIGNALS
Russia's economy is closer to growth than at any time since it slid into recession and central bank Governor Elvira Nabiullina is focusing on what she says are "positive signals."
Gross domestic product fell 2 percent in January-March from a year earlier, according to the median of 21 estimates in a Bloomberg survey. That compares with the Economy Ministry's projection for a 1.4 percent decrease. If the data set to be released this week confirm the forecasts, it would mark the slowest contraction since the decline started in the first quarter last year.
The world's biggest energy exporter responded to the shock of the oil collapse and international sanctions by allowing the ruble to trade freely in late 2014. While the worst currency crisis since the sovereign 1998 default sent real wages plunging the most since President Vladimir Putin came to power, it also helped raise the competitiveness of some industries. The Russian leader last month called changes to the economy's makeup the most important task.
"Some adaptation to the new environment has taken place as the economy passed from deep recession to stagnation," said Olga Sterina, an analyst at UralSib Capital in Moscow. "Yet the dependence on the situation in the commodities market remains high."
The optimism has also been reflected in Russian assets. The ruble, which plunged to a record low in January, has stabilized as crude rebounded. It's gained more than 12 percent against the dollar this year after a 20 percent loss in 2015.
The central bank has credited the ruble's free float for helping offset the external shocks. Changes in the economy are bringing closer "a phase of recovering growth," policy makers said in a statement April 29, when they kept borrowing costs unchanged for a sixth consecutive meeting. Nabiullina last month highlighted agriculture alongside the food and chemical industries as positive examples.
"The most important thing right now is probably how the economy is adjusting to new conditions," Nabiullina said last month. "And we see some positive signals, some of the expected shifts have began in the structure of the Russian economy. There's a shift from non-tradable sectors to tradables, especially those oriented toward exports."
The annual decline in industrial output averaged 0.7 percent in the first three months, slowing from 3.4 percent in 2015. The average contraction in retail sales eased to 5.4 percent in January-March from 9.7 percent last year.
Energy remains the lifeblood of the economy. Russia, one of the world's biggest oil exporters, is looking to cut its dependence on commodities prices after their collapse plunged the country into its longest recession in two decades.
The Economy Ministry predicts that the contraction will slow to 0.2 percent from 3.7 percent in 2015. While the central bank is more pessimistic, forecasting a drop of as much as 1.5 percent, it says quarterly GDP growth may return in the second half of this year or in early 2017.
As the oil market remains volatile and elections loom this year and in 2018, there's been a growing appetite to print money to boost the recovery. The central bank is resisting calls from businessmen and officials to resume monetary easing after halting it for 10 months, as inflation is almost two times higher than its 4 percent target. The Finance Ministry is struggling to keep the budget deficit within 3 percent of GDP after it reached the highest in five years in 2015.
When Putin addressed the economy last month during his annual televised call-in show, he rejected such calls and touted an increase in high-tech exports, especially when compared with energy.
What's "most important is not to print money but to change our economy's structure," Putin said. "The main issues are how to attract investment, make our economy more efficient, and ensure demand -- in other words, how to raise people's incomes."
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