Russian Fourth-Quarter Growth Probably Fell to 3-Year Low

Russia’s economy probably grew at the weakest pace in the final three months of last year since a recession in 2009 as Europe’s debt crisis prompted companies to cut investment and consumer spending stumbled.

Gross domestic product advanced 2 percent from a year earlier, easing from 2.9 percent in July-September and 4.9 percent at the start of 2012, according to the median estimate of 17 economists in a Bloomberg survey. The forecasts ranged from 1 percent to 2.4 percent. The statistics office will probably release the figures tomorrow or April 3.

Consumer demand is waning just as a recession in the European Union, which accounts for about half of Russian trade, chokes corporate investment and curbs demand for commodities, hurting sales at companies from OAO Novolipetsk Steel (NLMK) to carmaker OAO AvtoVAZ. The slowdown, which has continued into this year, sparked an argument between policy makers over interest-rate cuts to spur growth with inflation above target.

“Investments and consumption were continuing to slow at the end of the year,” Vladimir Kolychev, head of research at Societe Generale SA (GLE)’s OAO Rosbank (ROSB) unit in Moscow, said by phone March 29.

The Micex Index (INDEXCF) tumbled 2.5 percent in the last three months, its worst quarter since April-June 2012. It fell 0.4 percent to 1,432.52 as of 10:08 a.m. in Moscow. The 50-stock Russian benchmark advanced 1.1 percent in the final quarter of last year, lagging behind a 5.2 percent gain in the MSCI Emerging Markets Index.

Steel, Cars

Steelmakers including Novolipetsk Steel and OAO Severstal (SVST) reported net losses in the fourth quarter. Billionaire Alexey Mordashov, Severstal’s chief executive, cited a weakening global economy as a drag on demand.

Sales of cars and light commercial vehicles rose 2 percent in February, slowing from last year’s high of 25 percent, according to the Association of European Businesses in Russia.

Russia’s manufacturing grew in March at the second-slowest pace in the past 12 months, with the Purchasing Managers’ Index falling to 50.8 from 52 in February, HSBC Holdings Plc said today, citing data compiled by London-based Markit Economics. The survey-based index “revealed a broad-based weakening of growth momentum in March,” according to the report.

‘No Chance’

There’s “virtually no chance” the economy will expand faster than the government’s official 3.6 percent forecast for this year and risks persist that it will grow more slowly, Deputy Finance Minister Alexei Moiseev said at a conference organized by the Vedomosti newspaper March 29.

Investment eased after the state spent more evenly throughout the year and the economic outlook deteriorated both globally and in Russia, according to Rosbank’s Kolychev. Slower growth in credit and wages took a toll on consumer demand, while a surge in inflation toward the end of the year hurt spending, he said.

The Economy Ministry may revise the growth forecast, Deputy Economy Minister Andrei Klepach said at the same conference, declining to elaborate. Russia would grow less than 2 percent in 2013 if output continued to expand at the current pace, he said.

Weakness, Stagnation

“The weakness will most likely continue into the start of this year,” said Vladimir Osakovskiy, chief economist for Russia at Bank of America Merrill Lynch in Moscow. “There continues to be a stagnation in industrial production, investment and freight shipments. Consumption is also slowing.”

Cargo shipments tumbled 4.1 percent in the first quarter from a year earlier, OAO Russian Railways, the state-owned monopoly, said by e-mail today.

Klepach, the government’s top economic forecaster, has clashed with officials from the central bank, urging lower interest rates to spur borrowing and bolster growth.

Sergey Shvetsov, a central bank deputy chairman, told Klepach March 29 that output was at potential and any reduction in borrowing costs would boost imports and inflation, rather than domestic production.

“The central bank is already making its contribution to economic growth,” Shvetsov said. “And it’s clear that it’s the government that’s responsible for economic growth and we are helping the government, within our purview.”

Wider Mandate

The government and lawmakers are discussing the possibility of expanding the central bank’s mandate to include some responsibility for economic growth, President Vladimir Putin’s spokesman, Dmitry Peskov, said last week.

The discussions follow Putin’s March 12 nomination of his aide Elvira Nabiullina, a former economy minister, to replace outgoing chairman Sergey Ignatiev, with lawmakers scheduled to resume hearings on the nomination April 3.

Her appointment has triggered speculation that monetary policy will be loosened after officials including Klepach sought lower borrowing costs to revive growth in what First Deputy Prime Minister Igor Shuvalov called a “huge argument” between the government and policy makers.

Bank Rossii will leave rates unchanged for a seventh month when it meets tomorrow, according to a Bloomberg survey. The central bank wants to keep inflation at 5 percent to 6 percent this year, a range it was forced to abandon last year.

The inflation rate surged to an 18-month peak of 7.3 percent in February and remained at that level in early March, the central bank said last month. Ignatiev, whose final term ends in June, has said he’d consider cutting rates once inflation falls.

5% Target

Growing at the 5 percent medium-term target set by Prime Minister Dmitry Medvedev isn’t in the cards for this year, and probably won’t happen in the coming years without a significant improvement in the external environment, Klepach said March 29.

Investment in fixed capital fell 0.4 percent in December from a year earlier after expanding by more than 16 percent in the first quarter of 2012.

“The deceleration in the fourth quarter is related to slowing growth in investment and consumption,” Maria Pomelnikova, an analyst at ZAO Raiffeisenbank in Moscow, said March 28. “The negative trend is continuing.The trend in investment is just catching up with industrial production, which has been stagnating for more than half a year.”

To contact the reporters on this story: Scott Rose in Moscow at rrose10@bloomberg.net; Olga Tanas in Moscow at otanas@bloomberg.net

To contact the editor responsible for this story: Balazs Penz at bpenz@bloomberg.net

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