One chart: Russia's Economy has almost stopped shrinking. Now what?

Outside of the Middle East, few economies rely on energy exports to the extent that Russia does. So when oil prices go down, that’s very bad news for the Kremlin. But when they’re heading upward, as has been the case this year, it’s cause for celebration. As the price of Brent crude has risen from $27 a barrel in January to $48 in late August, Russia’s capital outflows have slowed dramatically and the ruble has finally stabilized after a steep depreciation in late 2015. Preliminary estimates indicate that the pace of GDP contraction in Russia halved from the first quarter of 2016 to the second, from -1.2 percent to just -0.6 percent, and economists on Credit Suisse’s Global Markets team believe the economy will return to positive growth (1.7 percent) in 2017 after shrinking for two consecutive years. Still, the sharp drop in oil revenues has taken a heavy toll on the federal budget over the past two years. (See above chart.) Russia plans to return to three-year fiscal planning, a policy suspended last year, after parliamentary elections September 18. With budget fixes on the way and inflation trending lower, Credit Suisse believes the Bank of Russia will cut policy rates by 1 percentage point to 9.5 percent in the remaining months of 2016 and by another 1.5 percentage points to 8 percent in 2017. It could be the start of a virtuous cycle, so long as oil prices don’t drop again.