Photographer: Andrey Rudakov/Bloomberg

Russian Economy Unexpectedly Expanded 0.4% in Fourth Quarter

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Russia’s economy unexpectedly grew in the fourth quarter before the full effect of the country’s currency crisis took hold.

Gross domestic product expanded 0.4 percent from a year earlier after a revised 0.9 percent gain in the previous three months, the Federal Statistics Service in Moscow said on Wednesday, citing a preliminary estimate. That was above the median estimate for zero growth by 11 economists in a Bloomberg survey. Full-year GDP rose 0.6 percent in 2014, the service said, confirming its first assessment in January.

The economy of the world’s largest energy exporter was grinding to a halt before an almost 50 percent crash in oil prices and the ruble’s worst crisis since 1998 brought Russia to the brink of a recession. Sanctions imposed by the U.S. and the European Union over the conflict in Ukraine cut off access to international markets and stoked capital outflows, forcing authorities to respond with spending cutbacks and an emergency increase in the benchmark interest rate in December.

“The economy is gradually entering a recession,” said Vladimir Tikhomirov, chief economist at BCS Financial Group in Moscow. “It’s difficult to say when a reversal will happen. I expect that it may happen in the course of the coming three to six months.”

A “one-time burst” of consumer demand in late 2014 may have supported growth, according to Tikhomirov.

Worst Over

The Bank of Russia, which raised its key rate six times in 2014, has since cut borrowing costs twice as inflation stabilized on a weekly basis. Finance Minister Anton Siluanov last month declared the worst was over.

The cost of protecting Russian bonds against default using credit-default swaps declined to the lowest since December on an intraday basis. The ruble, which depreciated 46 percent against the dollar last year, has gained about 4 percent this year, becoming the best performer among 24 emerging-market currencies tracked by Bloomberg. It traded 0.6 percent stronger at 57.8840 versus the dollar as of 4:26 p.m. in Moscow.

Economic growth was downwardly revised to 0.6 percent in the first quarter and 0.7 percent in the following three months, according to the statistics service. That compares with previous estimates for increases of 0.9 percent and 0.8 percent.

Starting in the second quarter, data from Crimea was included in calculating Russia’s economic output, the service said. Russia annexed the Black Sea peninsula from Ukraine in March 2014.

Economic Outlook

The economy may contract 3.8 percent this year if oil averages $53 a barrel, the World Bank said in a report issued on Wednesday, citing estimates based on its baseline scenario for Russia. GDP may drop 4.6 percent in 2015 at an average oil price of $45, according to the report.

“The modest rate of economic expansion last year speaks of the anemic internal demand environment born out of sticky inflation and high debt servicing costs,” Johannesburg-based Tradition Analytics said in an e-mailed research note. “Global growth, meanwhile, remains uneven and is therefore unlikely to meaningfully boost GDP.”

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