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HSBC: Russia enters technical recession, as Ukraine’s drag weighs

Published time: July 03, 2014 13:47
AFP Photo / Dmitry Kostyukov

AFP Photo / Dmitry Kostyukov

Russia has slipped into a technical recession, as the growth has been negative for the past two consecutive quarters, and stagflation could be on the horizon, a new HSBC report reveals. Political tension in neighboring Ukraine is being blamed.

“In June, the Russian economy showed zero growth, and slipped into a technical recession in the first half of 2014”, HSBC analyst Artem Biryukov commented in a Thursday note.

“Unfortunately, the recent spike in geopolitical tensions amid the Russia-Ukraine standoff will likely have long lasting negative effects on private fixed investment growth in Russia. This will hamper economic recovery in Russia in 2014-15, despite large investments further to the signing of the Russia Chinagas deal,” Biryukov said.

Ukraine is Russia’s third largest trading partner with a turnover of around $22 billion in 2013. Souring relations with some western countries that don't agree with Russia's actions in Ukraine is hitting Russian foreign trade. In March 2014 it fell 11.4 percent compared to March 2013.

According to Biryukov, the most likely outlook for the second half of 2014 is stagflation - low economic growth coupled with high inflation.

“Stagflation remains our baseline scenario for 2H 2014. The shaky improvement of manufacturing and services sector activity in June is unlikely to be sustained for purely statistical reasons. Once positive base effects fade in 2H 2014, we could see even negative annual GDP growth data appearing,” Biryukov wrote.

Russia could further fall into the financial abyss, HSBC warns. In the first quarter of 2014, between January and March, Russia’s seasonally adjusted GDP fell by 0.5 percent.

HSBC analysts used manufacturing, service industry, and business activity indicators as proof the Russian economy has slowed, nearly to a halt.

Russia’s Purchasing Managers Index (PMI) in June grew to 49.3 points, but still didn’t break 50, the threshold that denotes expansion.

The Production Index was 50.1 points after it hit a minimum of 47.1 in May.

The economy only added 0.9 percent in the first quarter of 2014, revised from the previously assessed figure of 0.8 percent, according to Rosstat, the country’s statistical office. It was a 0.3 percent drop compared to October-December 2013.

At the height of the conflict in March when Crimea rejoined Russia, Russia’s GDP growth was 0.9 percent, compared to 1.3 percent the year before.

Comments (42)


Russell Dee 28.07.2014 00:15

rogirl 04.07.2014 03:40

If it is true then it is just a temporary delay as the wheel of the great Russian economy is turned further East towards China as a result of the stupid and mean spirited attitude of some of the western countries.


Ch inese money won't come for years. By the time China money arrives, the West may have ways to reduce the value of Russian fuel so maybe Russia won't profit much. Open up your eyes! Fracking is coming & so are other advanced fuel techniques.

Russia is the one that is mean-spirited. Russia is trying to steal freedom from Ukraine.


Russell Dee 28.07.2014 00:00

Michael Andersson 04.07.2014 07:57

If you wonder why the USA is so aggressive and starting wars everywhere, do not look any further: The USA is aiming at dominating the world, killing all opposition. That is why it imposed the fascist coup-d'etat in Ukraine.


You're mixed up. It's Russia that wants to dominate other countries. Russia helps Eastern Ukraine terrorists to try to take over Ukraine. Many Eastern Ukraine ("volunteer&quo t;) terrorists come from Russia & Russian satellite countries. Russia wants freedom for itself but steals freedom from Ukraine. Why don't you leave Ukraine alone?


Russell Dee 27.07.2014 23:52

lolo 04.07.2014 09:04

Russia will survive, can't say the same about America and their worthless currency


I'm American. I mean no harm to Russia. But Russia is trying to steal freedom from Ukraine people & that's immoral. Enslaving people is fascistic and that means Russia is being fascistic. Russians should leave Ukraine alone.

You may survive sanctions but sanctions are going to hurt Russia. Some will not survive. Wouldn't it be better for everyone if Russia just left Ukraine alone? Leave Ukraine to the Ukrainians.

View all comments (42)
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