Rosstat has published its flash estimate of 1Q15 GDP, at -1.9% YoY, which was stronger than we or the consensus expected (VTBC -2.6% YoY; MinEconomy -2.2%, CNS -2.6%).
Despite the flash estimate providing a positive surprise, we believe it would be easy to become too excited and upbeat. The -1.9% YoY print still implies a sequential rate of output contraction of an estimated -2.1% QoQ SA. Note that in its flash estimate, Rosstat only provides a headline figure, with no details on the structure of the decline.
The available monthly statistics provide evidence that the slowdown was mostly demand-driven, as wholesale and retail trade bore the brunt of the adjustment while tradable sectors fared relatively well. However, as the economy enters the second quarter some of the factors that supported the supply side are starting to dissipate: i) the normalisation of interest levels has become more gradual, which means that investments and big ticket purchases are to be constrained for the coming quarters both by the level of interest rates and by expectations that they will eventual coming down; ii) RUB appreciation partially takes away the support for the tradable sectors of economy, which is equivalent to monetary tightening.
We expect economic activity to decline further in the coming quarters. Local consumer and investment demand is likely to continue weighing on output growth, while net exports are to support economic activity, driven in large part by a contraction in imports. At the bottom line, we expect the Russian economy to contract 4.0-4.5% in 2015, with negative growth in the rest of the coming quarters this year.