Fitch Ratings upgraded Russia’s GDP outlook for 2017 to 2% from previous 1.6%, according to the Global Economic Outlook (GEO) of the agency.
Fitch is the only “big three” agency maintaining an investment-grade rating on Russia, the outlook on which it recently improved to Positive.
The agency noted that Russia’s GDP growth accelerated in the second quarter of 2017 to 2.5% thanks to private consumption and investment. Consumption, in turn, was supported by low unemployment, higher incomes, and improving crediting conditions.
Fitch’s believe in a consumption-lead recovery is supported by the breakdown of the second-quarter GDP data. “Consumption [growth] accelerated to +3.3% y/y in 2Q17, remaining the only sustainable support factor for GDP, while investment and inventories are volatile,” Gazprombank commented on October 3.
The bank believes that gradual acceleration in consumption “seems logical given that households are smoothly emerging from austerity mode seen in 2015-16 amid a lower non-mortgage debt burden and costs to service such debt.”
Moreover, consumption is developing in conditions of stable low unemployment rate and growth in wages.
Alfa Bank on October 3 noted that there is still a gap between the retail trade dynamics and household, which it attributed to growth via online purchases.
“All in all, the household consumption figures show quite steady growth, while retail trade is not such a reliable indicator of the consumption trend,” Alfa wrote.
Gazprombank sees investment as still hard to predict, as “the lack of noticeable revival in corporate lending underscores the absence of sustainable investment demand beyond certain state projects.”
Positive effects from investment are also offset by increase in imports as machinery and equipment accounts for over 40% of Russia’s imports. In January-June out of the $26bn increase in imports in $18bn was mainly investment import items, Gazprombank estimated.