The decline of Russia's GDP slowed down to 0.4% year-on-year in the third quarter of 2016, according to a flash estimate of the Rosstat state statistics agency published on November 14. GDP is in decline for the seventh consecutive quarter, however,  contraction in July-September is the slowest in the series.

This was broadly in line with expectations: the conservative and cautious Central Bank of Russia (CBR) expected GDP to contract by 0.4-0.7% in the reporting quarter and 0.3-0.7% in 2016 overall. In the first and second quarter of 2016, GDP declined by 1.2% and 0.6% y/y, respectively, while 2015 overall saw a recession of 3.7% y/y.

"Deceleration of the GDP contraction in 3Q16 matches our expectation of slight improvement in the GDP dynamic in 2H16 compared with -0.9% y/y in 1H16," Gazprombank commented on November 15.

The bank noted that "unlike in 2Q16, the improvement occurred without the support of a statistical base effect and instead reflected budgetary support, as federal budget spending increased 1% y/y in 3Q16 after having declined 9% y/y in 2Q16 and 21% y/y in 1Q16".

BCS Equity reminds that the third quarter was expected to bring GDP to positive territory or at least post zero growth, which was delayed mostly due to uneven industry performance in September.

Analysts expect the trend to be broken in the fourth quarter, with GDP growth of 0.2% y/y expected, translating to 0.5% y/y contraction in 2016 overall.

Alfa Bank is cautious, however, reminding that the economic recovery remains extremely volatile: according to the economy ministry GDP was down 0.7% y/y in September after 0.2% growth in August.

The bank also warns that a significant recent growth in imports is likely to undermine domestic growth factors going forward. Alfa therefore reiterates the 0.8% y/y GDP decline forecast for 2016.

The bank also believes that the 1.5% GDP growth forecast for 2017 "will only reach target in the event of budget policy adding more stimulus than the Finance Ministry promises for next year".

"Further improvement in the GDP dynamic in 4Q16 remains questionable," Gazprombank wrote, arguing that "economic trends are still fragile and vulnerable to economic policy signals, which have recently tightened significantly".

Among factors possibly limiting return to strong growth the bank lists the budget draft, which implies spending restrictions and the CBR's more hawkish rate policy rhetoric. Gazprombank reiterated the base-case scenario of 0.7% y/y decline in GDP in 2016.