Russian Economy Probably Accelerated in Second Quarter

Russia’s economic growth probably accelerated for the first time in six quarters, suggesting domestic demand is strong enough to help the economy ride out its steepest slowdown in four years.

Gross domestic product expanded 2 percent in the April to June period from a year earlier, according to the median estimate of 19 economists in a Bloomberg survey. That compares with the Economy Ministry’s projection for a 1.9 percent increase and exceeds the 1.6 percent advance in the first quarter that beat initial estimates. The Federal Statistics Service in Moscow will publish the data today at 4 p.m.

“We had an upside surprise in the first quarter and it may happen again,” said Tatiana Orlova, senior economist at Royal Bank of Scotland Group Plc in London. “Household consumption likely remained the main driver of growth in the second quarter.”

The economy is struggling with the drag created by weaker global demand for commodities, putting pressure on President Vladimir Putin’s allies as they prepare for next month’s elections in major cities including Moscow and Yekaterinburg. The government last month approved a stimulus plan, including measures to cut the cost of loans to businesses.

Investment, Spending

Economic growth has slowed every quarter since the final three months of 2011 as investment slumped and the government slowed spending increases following Putin’s re-election in March 2012. Trade has also weakened, with Russia’s surplus narrowing 11 percent in the first half from a year earlier, according to Federal Customs Service data.

Stocks have taken a beating, missing out on a rally in the U.S. that sent the S&P 500 Index (SPX) to a record high last week. The dollar-denominated RTS Index (RTSI$) of 50 stocks is down 14 percent this year, more than the MSCI Emerging Market Index’s 10 percent decline.

Bank Rossii, which today left its main lending rates unchanged for an 11th month, pointed to “significant risks” of a further economic deceleration as a result of weak investment activity and a slow recovery of external demand.

“At present time the main source for economic expansion is consumption, supported by growth of real wages and retail lending,” the central bank said in the statement accompanying its rate decision.

Resilient Consumer

Retail sales, a gauge of the household consumption that accounts for about half Russia’s economy, have continued to grow, although at a slower pace than in the first quarter. That has supported companies including OAO Magnit, the country’s largest food retailer, which more than doubled its first-half dividend this month.

“We’re seeing a slowdown in consumer spending, but it’s still pretty robust relative to net exports and investment,” said Ivan Tchakarov, chief economist for Russia at Renaissance Capital in Moscow. “I think we’re going to get a number that’s a little better than what the Economy Ministry is saying.”

Estimates in the Bloomberg survey ranged from 1.4 percent to 2.4 percent. Investors may be expecting an acceleration to about 1.9 percent, which was the government’s first estimate, according to Alfa Bank.

“We’re a little unsettled by that number, because it’s not clear what would have provided the acceleration,” Dmitry Dolgin, an economist at Moscow-based Alfa Bank, said by phone yesterday. Any acceleration was probably a result of an increase in inventories, which wouldn’t result in sustainable growth, he said.

To contact the reporter on this story: Scott Rose in Moscow at rrose10@bloomberg.net

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

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