Real economy showing first signs of recovery
Overview:
After a very sharp economic downturn there are the first signs that the real economy is starting to turn around. The current account has remained in surplus despite the sharp fall in the oil price and the capital account is stabilising allowing FX reserves and the ruble to recover. Huge fiscal stimulus has helped to soften the downturn but will need to be financed by both a return to the international capital markets and a further large run-down in the government’s fiscal reserves. Sentiment in Russian financial markets started to become more positive several months ago. However, the banks still have significant hurdles to overcome as the share of non-performing loans (NPLs) rises. Prospective capital increases to combat this will add to large external debt repayments as an obstacle to a recovery in private credit growth.