Another supportive factor in Russia was the coordinated response by all the key policy officials, including the strong support of the president and the Duma. This meant all parties were cognizant of the risks in not containing the situation and were working toward the common goal of stabilizing the markets and the economy. We have not seen that yet in Brazil, and until we do, it is likely that its macro picture and markets will continue to deteriorate.
Looking ahead in Russia, we expect GDP to contract between -4.0% and -3.5% this year and -0.5% in 2016. Meanwhile, the disinflation trend is set to continue, and because the impact from the ruble’s weakness has been relatively contained, the central bank likely will continue to cut interest rates at a moderate pace.
Importantly, the combination of massive corporate deleveraging due to economic sanctions on Russia and an improvement in the balance of payments, which stems from lower imports and more currency flexibility, has provided a very powerful backdrop for Russian external debt. We expect the improvement and strength in Russia’s external balance sheet to continue as the current account surplus improves and the corporate sector continues to deleverage.
