Putin Calls for Stimulus Plan After Recession AlarmAgnes Lovasz
Russian President Vladimir Putin urged the government to come up with a plan to revive the flagging economy after a minister warned that a recession is possible as companies cut investment and export demand wanes.
Putin told Prime Minister Dmitry Medvedev, who will address lawmakers tomorrow, to devise steps to aid “shoots” of growth, according to televised remarks. While not the main scenario, Russia risks sliding into a recession without stimulus, Economy Minister Andrei Belousov said last week after cutting this year’s growth forecast.
Russia’s $2 trillion economy is growing at the weakest pace since a 2009 contraction as Europe’s debt crisis curbed exports and prompted companies to trim investment as the government scaled back spending after elections. Gross domestic product will rise 2.4 percent this year, according to the Economy Ministry, which downgraded an earlier projection of 3.6 percent. The slowdown is hurting incomes, Putin told Medvedev yesterday, asking him to use Russia’s “tested” crisis-fighting tools and new measures to counter the slump.
The president’s remark that the slowdown is sapping incomes suggests “the government may be prompted to revisit demand-supporting measures such as wage and pension increases,” Sergei Voloboev and Alexey Pogorelov, analysts at Credit Suisse Group AG, said today in an e-mailed research note. “The focus on the policy side is now on the timing -- and magnitude -- of forthcoming monetary easing, and any other types of stimulus that the government may come up with.”
The ruble has lost about 2.4 percent against the dollar in the past month, the worst performance among more than 20 emerging-market currencies tracked by Bloomberg. It traded 0.2 percent stronger at 31.3405 per dollar at 5:32 p.m. in Moscow after weakening 1.1 percent yesterday. The Micex Index climbed 0.1 percent to 1,360.4 after dropping to the lowest since June yesterday.
West Texas Intermediate crude fell to the lowest level this year as China’s economic growth unexpectedly lost momentum, raising concern that demand from the world’s second-biggest oil-consuming country will slow. WTI for May delivery slipped as much as $2.65 to $86.06 a barrel in electronic trading on the New York Mercantile Exchange. Prices are down a fourth day, the longest run of declines this year.
Russia’s economy grew 2.1 percent from a year earlier in the fourth quarter, down from 3 percent in the previous three months and less than Medvedev’s 5 percent medium-term target.
“The Russian leadership always gets worried when growth slows to below 3 percent because below that level they think people won’t get sufficient income,” Barbara Nestor, emerging-markets strategist at Commerzbank AG in London, said yesterday by phone. “When that happens, they deploy whatever they can. And first-quarter growth may indeed have been around zero.”
While data released yesterday showed industrial production unexpectedly rose from a year earlier in March, the first increase of 2013, first-quarter output was unchanged from the same period last year.
“The economy is in recession,” Mikhail Prokhorov, a Russian billionaire who ran in last year’s presidential election won by Putin, said in a post on his LiveJournal blog today. “It’s no longer possible to work in the conflict mode, in which the presidential administration holds real power, not the government.”
Putin should either take over Cabinet functions or allow the government to implement reforms that are long overdue, including measures to increase labor productivity and develop infrastructure, Prokhorov said.
Stimulus measures may include spending on building projects from one of Russia’s two sovereign-wealth funds, according to Nestor, who forecast 2013 growth of about 2.5 percent. The central bank may also seek to boost corporate lending, she said.
The government plans to invest as much as 100 billion rubles ($3 billion) from the National Wellbeing Fund this year in Russian securities and infrastructure projects to help remake the transport system of the world’s biggest country by area. Spending on infrastructure from the National Wellbeing Fund and the pension fund may be increased to 500 billion rubles a year, First Deputy Prime Minister Igor Shuvalov said April 3.
Russia’s economy is hobbled by a corporate-lending slowdown that represents a “huge challenge” to the country’s financial industry, Elvira Nabiullina, who will become central bank governor in June, said April 3.
In a bid to control state coffers as Europe struggles to rein in budget deficits, Russia introduced the so-called budget rule this year, capping public spending based on long-term oil prices.
The world’s biggest energy exporter gathers surplus revenue from oil and natural gas sales in the Reserve Fund until it reaches 7 percent of gross domestic product, a level the Economy Ministry wants to cut to 5 percent. This could allow the creation of a development fund for infrastructure spending, Belousov said this year.
Growth isn’t as “dismal” as the Economy Ministry’s new forecast suggests, according to Ivan Tchakarov, chief economist for Russia at Renaissance Capital in Moscow.
“This overly pessimistic view is intended to be used as a tool to apply pressure on the central bank and Finance Ministry to ease policy sooner rather than later,” he said yesterday by e-mail.
Under outgoing Chairman Sergey Ignatiev, Bank Rossii has resisted government calls to lower borrowing costs. The growth outlook is worsening because of high interest rates and a “very strong decline” in the estimate for natural gas exports, Belousov said April 12.
The central bank this month took the biggest step toward easing monetary policy since raising all rates in September. Policy makers cut some borrowing costs on less frequently used credit instruments.
Companies such as OAO Rosneft and OAO Gazprom are revising their investment plans, Belousov said. Energy exporter Gazprom plans to cut capital expenditures by 35 percent this year, according to his deputy, Andrei Klepach.
Subduing consumer-price growth should remain the priority of monetary policy, Nabiullina told lawmakers April 9 in a hearing on her nomination.
While Russia has “room to maneuver” in terms of easing rates, a reduction would require slowing growth and higher unemployment and should be made based on a full analysis of the situation, she said.
Russian officials have been taken by surprise by the extent of the economic slowdown, according to Liza Ermolenko, an emerging-markets economist at London-based Capital Economics Ltd. Still, the government’s options for boosting growth are limited because of above-target inflation and this year’s fiscal rule, she said yesterday by phone.
“Their options are very limited,” Ermolenko said. “Inflation is well above the central bank target range so the bank is unlikely to cut interest rates for the moment. On the fiscal side you have the new budget rule, which means that they can’t increase spending substantially.”