Russian Economy Probably Grew at Weakest Pace Since 2009
Russia’s economy probably grew at the weakest pace since 2009 in the first quarter as investment at companies including OAO Gazprom cooled and the euro area’s longest recession hurt demand for commodity exports.
Gross domestic product rose 1.2 percent from a year earlier, slowing from 2.1 percent in the previous three months, the fifth quarterly deceleration, according to the median estimate of 22 economists in a Bloomberg survey. The data are due from the Federal Statistics Service today or May 20.
The economy of the world’s largest energy exporter is stumbling as the recession in the euro-area, which accounts for about half of Russian trade, extended into a sixth quarter. That’s prompting companies to trim investment, while government spending on the 2014 Sochi Olympics is drawing to a close and public-wage growth is slowing after President Vladimir Putin won a six-year term in elections last year.
“The very worrying thing is fixed investment growth, especially in the longer run,” Vladimir Miklashevsky, an economist and trading strategist at Danske Bank A/S (DANSKE), said in an interview in Moscow. “The government and the president are trying to figure out what they should do.”
Russian stocks have underperformed emerging- and developed-market peers, with the Micex Index (INDEXCF) down 2.5 percent in the first three months, compared with a 2 percent decline in the MSCI Emerging Markets Index and a 10 percent advance for the S&P 500.
The ruble recorded a first-quarter decline for the first time since 2009, weakening 0.4 percent against the central bank’s target basket of dollars and euros.
The GDP slowdown prompted the Economy Ministry last month to cut its 2013 growth forecast to 2.4 percent from 3.7 percent and last year’s pace of 3.4 percent. The government this week submitted a draft plan to revive the economy to Putin, with measures including lowering bank lending rates and slowing increases in utilities tariffs.
Russia probably won’t slide into recession without an external shock, such as a downturn in the global economy, according to Deputy Economy Minister Andrei Klepach. While the euro zone is stagnating, some improvement there is expected in the second half, he told reporters yesterday.
“For us, stagnation and low growth are no less of an evil and no less of a threat,” he said after a government meeting in Moscow. “Accelerating the pace of growth without starting serious, national macroeconomic projects is impossible.”
Fixed investment fell 0.8 percent from a year earlier in March, the second contraction in four months, according to the statistics service. Investment by Russia’s biggest infrastructure companies dropped 10 percent last year and may tumble 12 percent to 13 percent in 2013, led by Gazprom, Economy Minister Andrei Belousov said yesterday.
About 40 percent of the slowdown in investment over the past year is related to global factors, according to Clemens Grafe, chief economist for Russia at Goldman Sachs Group Inc. Domestic uncertainty over policies including possible limits on officials and state company managers holding foreign financial assets may also have played a role, he said.
The slowdown has set off an argument between the government and central bank about whether interest rates are to blame. The Economy Ministry has called for lower borrowing costs and higher investment spending by the state to stimulate domestic demand. Bank Rossii has argued that unemployment near record lows and consumer-lending growth at almost 40 percent mean cheaper loans would only fuel inflation.
“We’re getting out of the period in the base where you had big fiscal spending around the election,” Grafe told a news conference yesterday in Moscow. That will probably help boost GDP growth to 2.7 percent in the second quarter from a 1.5 percent pace in the previous three months, he said.
Monetary-policy makers led by central bank Chairman Sergey Ignatiev, who steps down next month, have resisted calls to lower Russia’s key rates as inflation remains more than one percentage point above their 5 percent to 6 percent target range. They kept the refinancing rate at 8.25 percent for an eighth month this week.
“The central bank is likely to start easing monetary policy in the second half of this year,” Liza Ermolenko, an emerging-markets economist at Capital Economics in London, said yesterday by e-mail. “We have penciled in a total of 75 basis points worth of interest rate cuts by end-2013. That’s one more reason to expect a rebound in growth over the coming quarters.”
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