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Russia’s Economy to Accelerate After Second-Quarter Slowdown

Russia’s economy slowed in the second quarter, according to Deputy Economy Minister Andrei Klepach, who expects growth to accelerate in the final six months of 2011.

Gross domestic product expanded 3.7 percent from a year earlier in the April-June period, less than the 4.1 percent growth in the first three months of 2011, Klepach told reporters today in Moscow, without giving an explanation for the slowdown.

“We expect a pickup in growth in the second half, in part thanks to demand-driven investment,” Klepach said. Agricultural output will also help growth accelerate after the worst drought in at least half a century in 2010 destroyed harvests.

Russia, the world’s largest energy exporter, is lagging behind growth in emerging-market peers Brazil, India and China, even as prices for its commodity exports rise. Policymakers should target growth of at least 8 percent within 5 years to keep pace with the other so-called BRIC countries, President Dmitry Medvedev said in January. GDP expanded 4 percent last year after a record 7.8 percent contraction in 2009.

The ruble advanced 0.9 percent against the dollar, the most since July 13, to 27.7400 at the 7 p.m. close of trading in Moscow. The Micex Index of 30 stocks advanced 1.6 percent to 1729.00, the biggest daily gain since July 7.

Oil Prices, Harvest

“We remain bullish on economic acceleration in the second half on the back of higher oil prices,” which may reach $125 a barrel by year-end, said Julia Tsepliaeva, head of research at BNP Paribas SA in Moscow.

A good harvest should also provide a “strong rebound” in the agricultural sector, Tsepliaeva wrote today in an e-mailed note to clients

The grain crop may reach 90 million metric tons in 2011, allowing Russia to “regain our position in the global grain market,” Agriculture Minister Yelena Skrynnik said today in Moscow. The grain harvest fell to 60.9 million tons last year.

The Agriculture Ministry raised its export forecast for the year beginning July 1 to 18 million tons from 15 million to 17 million tons, Skrynnik said. Russia halted grain exports last year to stem food-price inflation. It lifted the ban from July 1.

Retail Sales

Retail sales are exceeding estimates as a slowdown in inflation bolsters household spending power, according to Klepach, who oversees macroeconomic forecasting. Sales are also benefiting from increased consumer credit, a lower savings rate and higher disposable incomes, he added.

Real disposable incomes rose 0.7 percent in June after falling in each of the preceding three months, the Federal Statistics Service said July 19.

“The recent pickup in real wages should feed through to retail sales as the year progresses,” Daniel Salter and Vladimir Kuznetsov, analysts at UniCredit SpA, said today in an e-mailed note. “The upcoming elections should lead to greater government expenditure, while changes to social taxes in 2012 should give companies more flexibility to increase wages.”

Broadcaster CTC Media, food retailers OAO Magnit and O’Key Group LLC, mobile operator OAO Mobile TeleSystems, technology holding AFK Sistema, and lender OAO Sberbank may profit, they wrote.

Full-Year Forecasts

The government’s 4.2 percent growth forecast for 2011 may be revised when the Economy Ministry presents updated projections in late August, Klepach said, adding that there is a “range of estimates” from 4 percent to 4.5 percent.

Economists expect Russia’s economy to expand 4.6 percent this year and 4.5 percent in 2012, according to the median of 17 forecasts in a Bloomberg survey.

GDP may expand 4.5 percent in the second half after growing 3.9 percent in the first six months of the year, Economy Minister Elvira Nabiullina said today in Moscow.

The government maintains its 6.5 percent to 7.5 percent forecast for full-year inflation, according to Klepach, who said the final figure may be nearer the lower end of that range. Prices advanced 9.4 percent in June from a year earlier, the statistics service said July 5.

Ruble Risks

The ruble is unlikely to weaken significantly next year, Klepach said. Still, a shrinking current-account surplus may turn into a deficit in 2013 or 2014, depending on global commodity prices and import volumes. Russia had a current account surplus of $32.4 billion in the first quarter, according to central-bank data.

“There are risks,” Klepach said. “It’s also possible to avoid sharp devaluations, but here a lot depends on the global economy.”

While an even or slightly negative current account balance won’t necessarily cause a significant weakening of the ruble, it would excerpt pressure on the Russian currency, Klepach said.

“When there are big capital outflows, it’s harder to maintain the ruble rate.”

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