Russia’s economy contracted by 0.6% in the second quarter, better than analysts were expecting and reaffirming the growing feeling that the worst has passed for the Russian economy.

Rosstat released a flash estimate on August 10 that shows the Russian economy contracted 0.6% y/y in Q2, improving from the 1.2% y/y decline in Q1.

“That was better than both the VTBC and Bloomberg consensus forecasts (-0.8% y/y) and in line with the projections from the Ministry for the Economy,” VTB Capital said in a note.

No details on the structure of the decline have been provided, as only the headline figure is published, so analysts are looking to mid-September when Rosstat will release the production breakdown for Q2.

“Still, available monthly statistics suggest that the improvement was on the back of supply side strength and changes in inventories. In 2Q16, industrial production turned positive, at 1.0% y/y, after having contracted for five quarters in a row. The structure of the recovery is also promising, as two out of three main segments are on the rise: manufacturing added 1.8% y/y and mining and quarrying was 0.9% y/y higher (electricity, gas and water production, meanwhile, was flat in annual terms in 2Q16),” VTBC said in a note.

Consumer demand, on the contrary, unlikely supported the economy. June retail sales shrank for a record 18th month in a row. At the same time, activity in the consumer segment is lagging the front-loaded wages recovery: in real terms, wages were already 0.5% y/y higher in Q2. One explanation could be that the wage growth acceleration is mostly due to the top quintiles of income distribution, as economist believe that income inequality in Russia is getting worst.

The first estimate of investment dynamics in Q2 is likely to be published in the coming weeks, though the monthly data on construction suggests a deterioration in the segment: volumes were 8.3% y/y lower, compared with the 1.6% y/y decline in Q1.

“The intra-year path of GDP growth (in y/y terms) has likely passed its inflection point, as we expect positive growth in the last two quarters of the year,” VTBC said. “We also note that the flash estimates are subject to revision and although the estimate for 1Q16 was reiterated in a subsequent report, in other cases the initial number has been (significantly) reviewed, and in both directions: in 3Q15, it was improved to -3.7% y/y from -4.1% y/y, while in 1Q15 the revision was to the downside, to -2.8% y/y from -1.9% y/y.”