It looks like the worst might finally be over for Russia

Reuters/Alexander Demianchuk (Russian cow.It looks like the worst might finally be over in Russia.

According to preliminary data from state statistics service, Rosstat, Russia's economy shrank by 4.1% year-over-year in the third quarter, less than the second quarter's contraction of 4.6%.

While that number alone doesn't look stellar, Capital Economics' Liza Ermolenko writes that a 4.1% annual drop "would be consistent with a 0.1% expansion on the quarter."

In other words, that would make Q3 the first quarter of positive quarter-over-quarter growth in Russia in over a year.

(It's worth mentioning that seasonally-adjusted quarter-over-quarter data will not be published until later in the month.)

Ermolenko writes that monthly activity data suggests that the improvement was driven by the industrial sector, which saw its contraction decelerate to 4.2% y/y in the third quarter from 4.9% in the second.

However, there are still no positive signs coming out of the consumer sector. Retail sales continued to fall, plunging to -9.5% for Q3, down from -9.2% in Q2.

Still, "all told, it looks like the worst of Russia's recession is now probably behind us," writes Ermolenko. "The pace of contraction output is likely to continue to ease over the coming quarters. Accordingly, our forecast for a drop in output of 5% for this year now looks too pessimistic; a contraction of 3.5% is more likely."

But before everyone breaks out the party hats, she also offers a word of caution:

"The more important point is that with oil prices set to remain low, the recovery from here on will be extremely sluggish."

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