OREANDA-NEWS. VEB flash estimate suggests that the GDP decline continued in February 2015. GDP contracted by 0.6% month-on-month and was down by 2.1% year-on-year.

According to VEB estimate, seasonally adjusted GDP has been declining for two consecutive months. In February GDP contraction slowed to 0.6% after a 1.2% decline in January.

The most important factors behind this downturn were deterioration in trade (-1.9%), manufacturing (-0.9%) and services (-1.2%), as well as net taxes. By contrast, construction and transport services showed signs of recovery, expanding by a respective 0.5% and 0.3%.

VEB estimate suggests that real GDP decreased by 2.1% year-on-year in February 2015, after a decline of 1% in January 2015.

The worsening of economic activity mainly reflects a deterioration in manufacturing, trade and net taxes. In February the contribution of manufacturing has become negative, amounting to -0.3 p.p. (down from 0 p.p.), while the negative contribution of wholesale and retail trade went from -0.8 p.p. to -1.0 p.p.

Comment by Andrei Klepach, Chief economist of VEB:
"A slowdown in consumption since the beginning of the year has been the main factor behind the contraction in the economy.

The slowdown is a result of constraints in the retail credit market and renewed growth of savings, which was caused by high deposit interest rates and increased uncertainty in the labour market.

At the same time, seasonally adjusted monthly growth of real income of the population remained positive, despite accelerating inflation. A key factor that supported income growth in February was pension indexation.

We believe that the decline in investment that was observed in January and February does not yet fully reflect the change in economic conditions. We expect a further acceleration in investment decline in the coming months, taking into account restrictive interest rates on new loans, high degree of uncertainty and a peak in foreign debt payments.

According to our preliminary estimates, net capital outflow in February increased to 15 bln USD, up from 9 bln USD in January. This is a rather high level, given that population is becoming a less important player on the foreign exchange market".

As new data on January became available, VEB has revised up the estimate of year-on-year GDP growth in January from -1.2% to -1.0%.

The key factor behind the GDP growth upgrade was a 28% increase in exports of oil products that partly softened the negative impact from trade and manufacturing. As compared with the previous month, the decline in GDP was revised up from -1.4% to -1.2%.