Russian Economy Unexpectedly Slows as Recession Specter Returns

Photographer: Andrey Rudakov/Bloomberg

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. Close

Trade has also weakened, with Russia’s surplus narrowing 11 percent in the first half... Read More

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Photographer: Andrey Rudakov/Bloomberg

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.

Russia’s economy unexpectedly slowed in the second quarter to extend a slide that’s stoking concern the world’s biggest energy exporter may be entering a recession.

Gross domestic product expanded 1.2 percent from a year earlier, the Federal Statistics Service in Moscow said today in an e-mailed report. That was below all 19 forecasts in a Bloomberg survey, which had a median estimate of 2 percent. The Economy Ministry had projected that output expanded 1.9 percent in the period.

Sagging investment and household spending, once a mainstay of the economic recovery, are dragging the nation to the brink of a recession, compounding the challenges Russia faces from weaker global demand for its commodities. Russia’s central bank, which left its main rates unchanged for an 11th month today, will probably face another bout of pressure to ease policy after signaling increased concern about the economy.

“Second-quarter GDP is seriously disappointing and is a very strong argument for monetary-policy easing,” said Piotr Matys, an emerging-markets economist at 4Cast Ltd. in London. “Weak external demand and investments are still the main drag on the economy, but we suspect that final consumption, which has been the only relatively strong component so far, may have weakened as well.”

Photographer: Andrey Rudakov/Bloomberg

A vendor sits and reads a newspaper beside a souvenir stand selling matryoshka dolls in St. Petersburg. Close

A vendor sits and reads a newspaper beside a souvenir stand selling matryoshka dolls in St. Petersburg.

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Photographer: Andrey Rudakov/Bloomberg

A vendor sits and reads a newspaper beside a souvenir stand selling matryoshka dolls in St. Petersburg.

The ruble-denominated Micex Index (INDEXCF) of 50 stocks advanced 1.5 percent to 1382.88 as of 5:45 p.m. in Moscow. The ruble depreciated 0.1 percent to 32.866 against the dollar.

Recession Seen

The data suggest a 0.5 percent contraction in the quarter compared with the previous three months, when GDP is estimated to have shrunk 0.1 percent, Neil Shearing and Liza Ermolenko, economists at Capital Economics Ltd in London, said in a report.

Economy Minister Alexei Ulyukayev, a former first deputy central bank chairman, said July 16 that Russia faced no recession risk with output growth set to accelerate in the second half. His predecessor, Andrei Belousov, warned in April of the possibility of a recession later this year.

The chance of a recession in the next year has increased to 30 percent, according to a Bloomberg survey of 13 economists last month. That was up from 20 percent in June.

Economic growth has slowed every quarter since the final three months of 2011 as investment slumped and the government slowed spending increases following President Vladimir Putin’s re-election in March 2012. Today’s report didn’t provide any breakdown of the data.

Stagnation Assumed

“We’re going on the assumption that we had stagnation, both in the first and the second quarters,” Deputy Economy Minister Andrei Klepach said in a telephone interview today when asked whether the country had entered a technical recession.

Trade has weakened, with Russia’s surplus narrowing 11 percent in the first half from a year earlier, according to Federal Customs Service data.

“Weak investment activity and a slow recovery in foreign demand indicate that there remain significant risks of a Russian economic growth slowdown, including in the medium term,” the central bank said in a statement accompanying today’s rate decision.

The first-half downturn has left the pace of growth too weak to achieve the government’s goals, Prime Minister Dmitry Medvedev said at a July 25 meeting at which the cabinet approved a stimulus plan to boost the economy.

Stocks have fallen, 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.

“Looking ahead, some of the headwinds facing the economy are likely to ease over the second half of the year,” Capital Economics’ Shearing and Ermolenko said. “Inflation should fall back, which will reduce pressure on real incomes.”

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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