The Russian economy has been in free-fall for over a year.  GDP is probably down 8%, similar to the Global Financial Crisis of 2008/9.  Unemployment is not reported honestly but is believed to be approaching 15%.  Economists predict the Russian economy will continue to fall thru 2015, with recovery beginning in the second quarter of next year.

Among the “green shoots” is the fact that their currency is improving.  A year ago, a dollar bought 30-35 rubles.  A few months ago, it bought 70 rubles, reflecting a 50% depreciation in the ruble.  Today, a dollar buys almost 50 rubles.  This means their cost of their imports initially increased 50%, pushing overall inflation up, but those costs are now decreasing.  Their current rate of inflation is now estimated at a whopping 17% but can be expected to fall.

In addition to an improving currency, their inflation will be driven down by the difference in industrial production (down 0.6%) and retail spending (down 8.7%).  This means inventory levels are rising, which is not sustainable, and will lead to price-cutting to slash those inventory levels.

At 30% of Russian exports, it is also very important that the price of oil seems to have stabilized and is expected to improve slowly.  This is huge for their economy and cannot be over-estimated!

The downside risk to their economy remains in their political arena.  If peace doesn’t return to the Ukraine, more economic sanctions can be expected.

Does all this suggest it would be prudent to invest in Russia this year, with the expectation of improvement next year?  Absolutely not!  (Investors are begging to be fleeced whenever they invest without the rule of law.  To understand Russian business, read Red Notice by Bill Browder.)

Does all this suggest that additional Russian aggression should not be expected this year but is a virtual-certainty next year?  Absolutely yes!