Analysts at VTB Capital predict recession in Russia

Analysts with VTB Capital are predicting a recession in Russia during the second and third quarters of 2014, according to a report published on Monday.

Vladimir Kolychev and Daria Isakova, two analysts with VTB Capital, made the prediction as part of VTB’s Russian Economy Monthly report. Kolychev and Isakova said that signs are pointing toward a recession and lowered their fiscal year 2014 growth outlook to 0 percent.

“There are many signs that the economy is now being hit by an uncertainty shock,” Kolychev and Isakova said. “Faced with heightened uncertainty, firms are delaying investment and hiring, while households choose to postpone discretionary spending.”

Kolychev and Isakova said domestic demand is set to halt as a result of the uncertainty shock and tighter financial conditions. They said downside risks could occur if uncertainty remains elevated or if severe sanctions are imposed.

They added that inflation has picked up since February as prices in the more exposed and least FX hedged categories adjusted upwards. A weaker ruble has yet to translate into the broader consumer basket and will push headline consumer price index to 6.5 to 7 percent in the next two to three months before disinflation hits with a vengeance in the second half of 2014.

“Tighter funding conditions on the external markets are likely to keep pressure on the ruble┬ábefore geopolitical tensions ease,” Kolychev and Isakova said.

If tensions calm, the report said, monetary easing is likely to gradually spread throughout the second half of 2014.

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