Russian GDP Expands Less Than Forecast in Third QuarterScott Rose and Vladimir Kuznetsov
Russia’s economy grew less than estimated in the third quarter as a lack of investment kept the world’s largest energy exporter from reversing its worst slowdown since a 2009 recession.
Gross domestic product expanded 1.2 percent from a year earlier, the same pace as in the previous three months, the Federal Statistics Service in Moscow said today in an e-mailed statement. That matched the Economy Ministry’s forecast and trailed the 1.4 median of 19 estimates in a Bloomberg survey.
The investment-led growth model laid out by President Vladimir Putin after he took office for a third term last year hasn’t materialized, with weaker domestic demand hurting profits at companies including OAO AvtoVAZ. GDP growth had slowed every quarter since Putin won a third Kremlin term in March 2012, with senior officials including Prime Minister Dmitry Medvedev warning Russia’s export-driven economic model neared exhaustion.
“There is still little evidence of a much-needed shift away from an excessive reliance on consumer spending and towards greater investment,” Neil Shearing, chief economist for emerging markets at Capital Economics Ltd. in London, said in an e-mailed note. “An increase in private investment is unlikely without structural reforms to the financial sector and the business environment. These remain off the table for now.”
Lackluster prospects for Russian growth have curbed appetite for the country’s equities. The dollar-denominated RTS Index of 50 stocks has fallen 5.8 percent this year compared with a 24.1 percent advance in the Standard & Poor’s 500 Index.
The Russian benchmark gauge closed 0.7 percent higher at 1,437.37 in Moscow. The yield on Russia’s five-year ruble debt rose 7 basis points, or 0.07 percent, to 6.88 percent, a two-month high, according to data compiled by Bloomberg.
“Assuming some ‘optical’ recovery in the fourth quarter on the back of a base effect in agriculture and investments, annual GDP growth is unlikely to come higher than 1.5 percent,” said Vladimir Kolychev, chief economist for Russia at VTB Capital in Moscow. “Policy-wise, it should push the central bank to cut rates once inflation comes down in the first quarter.”
The central bank left interest rates unchanged for a 14th month last week after consumer prices rose 6.3 percent in October from a year earlier. Policy makers led by Chairman Elvira Nabiullina dropped a forecast that the inflation rate would fall into this year’s target range of 5 percent to 6 percent by year-end and warned that the pace of economic growth would remain “low” in the medium term.
Sales of new cars and light vehicles fell in October for an eighth month, declining 8 percent from a year earlier, the Association of European Businesses in Russia said in an e-mailed statement yesterday. The drop at AvtoVAZ, Russia’s biggest carmaker, reached 25 percent, the group said.
Russia, where growth averaged 7 percent during Putin’s first two terms as president in 2000-2008, will see its share of global GDP eroded over the next two decades as the economy expands more slowly than the world average, Economy Minister Alexei Ulyukayev told reporters in Moscow last week.
The government now projects an average growth rate of 2.5 percent a year to 2030 compared with 3.4 percent to 3.5 percent globally, he said. Capital Economic’s Shearing cut his forecast for Russian GDP growth this year to 1.5 percent from 1.8 percent, while keeping his 2014 projection at 2.8 percent.
Putin’s goals for economic growth included increasing investment to 25 percent of GDP by 2015 and raising labor productivity 50 percent from 2011 levels by 2018, according to orders published hours after his inauguration on May 7, 2012. Russia must double the pace of labor productivity gains from last year’s 3.1 percent, Putin said at an investment conference in Moscow on Oct. 2.
Economic growth had slowed every quarter since the last three months of 2011, when GDP expanded 5.1 percent, according to data compiled by Bloomberg. Economists projected the pace would accelerate to 3 percent as recently as July, according to a Bloomberg survey. Today’s release was a first estimate and didn’t provide any breakdown of the data.
The disappointing GDP figure “does keep pressure on the central bank to deliver the much needed policy support,” Vladimir Osakovskiy, chief economist for Russia at Bank of America Merill Lynch, said by e-mail. “However, the regulator remains overly focused on inflation.”