Photographer: Andrey Rudakov

Russia’s First GDP Slump Since 2009 Signals Milder Recession

Russia’s economy fared better than forecast by all analysts, a sign the world’s biggest energy exporter will suffer a milder recession than six years ago as the ruble’s rebound and monetary easing shore up domestic demand.

Gross domestic product contracted 1.9 percent in the first quarter from a year earlier after a 0.4 percent gain in the previous three months, the Federal Statistics Service in Moscow said on Friday, citing preliminary data. That was better than every forecast in a Bloomberg survey of 24 analysts, whose median estimate was for a 2.6 percent slump. The Economy Ministry had projected that output shrank 2.2 percent in the period.

The economy is adjusting after a plunge in oil prices and sanctions imposed over Ukraine ignited the ruble’s worst crisis since a 1998 default. Authorities have responded with a stimulus package and three decreases in interest rates this year as reeling consumption pinched sales at companies including PJSC MegaFon.

“We’re passing the peak,” Olga Lapshina, head of research at Bank Saint-Petersburg, whose forecast was the closest, said by phone. “Financial markets are improving faster but the real sector is spinning its wheels a bit.”

GDP shrank 7.8 percent in 2009 after oil prices plunged and the collapse of Lehman Brothers Holdings Inc. triggered the biggest credit squeeze since the Great Depression.

Brighter Outlook

The government has grown more confident about the outlook after warning of a hard landing for the economy in January following a crash in crude prices and mounting clashes in Ukraine. As Russia’s economy is regaining its footing, Ukraine’s GDP sank 17.6 percent in the first quarter from a year earlier, compared with a 14.8 percent drop in the previous three months, the statistics office in Kiev said Friday.

That’s the fifth straight quarter of contraction in Ukraine and compares with a median estimate of 13.5 percent in a Bloomberg poll of seven economists.

The improving sentiment in Russia is playing out in the market, with the ruble staging the world’s best performance globally against the dollar after losing almost half of its value in 2014. The Russian currency, which has appreciated 22 percent against the greenback in 2015, extended its gains and traded 0.9 percent stronger at 49.71 to the dollar as of 5:31 p.m. in Moscow.

Bonds, Stocks

The nation’s bonds have returned 45 percent this year in dollar terms, the most among 32 countries in the Bloomberg Emerging Market Local Sovereign Index. Russia’s dollar-denominated RTS Index has added 36 percent in 2015.

In a sign the central bank is drawing a line under the crisis, it sold rubles on Wednesday for the first time since June, moving to rebuild its reserves after spending almost $90 billion last year to defend the national currency.

“The economy should be on the path of recovery in the second half of the year, assuming that oil prices remain at current or higher levels and the central bank will be able to cut rates by at least 100 to 150 basis points per meeting,” said Piotr Matys, a London-based foreign-exchange strategist at Rabobank. “We still expect domestic demand to contract, but perhaps not as sharply as we assumed only few months ago.”

Entering Recession

The downturn marks what the government predicts will be a three-quarter slump after growth stalled last year amid the standoff with the U.S. and the European Union over Ukraine.

The Bank of Russia has moved to ease policy after six rate increases in 2014, including an emergency move to 17 percent in December. That’s brought the benchmark rate to 12.5 percent, with the central bank signaling that easing will continue as inflation risks abate further. Consumer prices grew 16.4 percent from a year earlier in April after accelerating to 16.9 percent in March.

While officials are raising expectations for a quick turnaround that may put the economy on track for growth in the fourth quarter, choking consumer demand is putting pressure on corporate revenues. Quarterly reports show the lowest average earnings per share for Russian companies since the beginning of 2009.

Russia’s second-largest wireless operator MegaFon reported a 1.2 percent decline in first-quarter revenue. The nation’s biggest electronic retailer M.Video said its sales dropped 6.3 percent in the first three months.

GDP may contract 2.8 percent this year before expanding 2.3 percent in 2016, Ulyukayev said April 23. The economy expanded 0.6 percent in 2014.

“We may see the deepest GDP fall of this year in the second quarter as previously tightened monetary policy is always biting with some lag, keeping fixed investment and private consumption deeply under zero,” Vladimir Miklashevsky, a strategist at Danske Bank A/S in Helsinki, said by e-mail before the data release.

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