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Russia: L-shaped recovery as economy set to grow marginally in 2016 – Danske Bank

FXStreet (Delhi) – Vladimir Miklashevsky, Economist at Danske Bank, suggests that the bank has raised their 2015 Russian GDP forecast to -3.9% y/y on 20 November 2015, from a 6.2% y/y fall previously, as economic contraction caused mainly by the oil price crash and aggressive monetary policy (rather than the effect of sanctions) is turning out to be more limited than expected due to the introduction of the free float regime and the start of import substitution.

Key Quotes

• “We see that the Bank of Russia’s (CBR) dovish monetary stance and freely floating currency regime remain supportive for our 2016 GDP growth forecast (0.5% y/y). Yet, new downside risks to our forecast have arisen on geopolitics.

• We expect 2017 GDP to expand 1.8% y/y on a lagging rate cut effect, leading to recovery in fixed investments and the continuing strengthening of industrial production.

• We remain moderately bearish on the rouble, expecting the USD/RUB to climb to 71.00 (3M) on the Fed’s possible monetary tightening, to 72.50 (6M) on weak oil and converging to 73.00 (12M), which is justified by a 12M average Brent price between USD54/bl and USD59/bl.

• Potential upside risks to our macro outlook are a higher oil price, easier monetary policy, expansionary fiscal policy under the parliamentary elections and the revoking of sanctions, which would improve sentiment and allow for cheaper external financing.

• An escalation of geopolitics and a tumbling oil price on worse-than-expected emerging market sentiment are downside risks for our GDP growth forecasts.”

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