Russian Economic Growth Slows More Than Estimated in 2013

Russia’s economy grew at less than half the previous year’s pace in 2013, missing economist forecasts as investment fell amid a record slump in Europe. Officials warned the outlook remains weak for this quarter.

Gross domestic product advanced 1.3 percent, the least since a 2009 recession, compared with 3.4 percent in 2012, the Moscow-based Federal Statistics Service reports its first estimate in an e-mailed statement. That fell short of the median 1.5 percent forecast of 19 economists in a Bloomberg survey and the Economy Ministry estimate of 1.4 percent.

The $2 trillion economy decelerated for a fourth year as consumer spending, the mainstay of Russia’s recovery, failed to make up for sagging investment and a drop in global demand for oil and natural gas. The slowdown may extend through the first quarter, Deputy Economy Minister Andrei Klepach told reporters in Moscow today.

“This destroys any hope left about a consumption-driven economy in Russia,” Vladimir Miklashevsky, an economist at Danske Bank A/S in Helsinki, said by e-mail. “Sustainable economic growth in Russia will be possible through expansion of private investments only.”

Russia’s dollar-denominated RTS stock index has lost 9.7 percent this year, underperforming the MSCI Emerging Market Index, which has dropped 7.1 percent, data compiled by Bloomberg show. The ruble has lost 7 percent against the dollar, making it the third-worst performer this year among 24 emerging-market currencies tracked by Bloomberg.

Recession Chances

The probability of a recession in Russia in the next 12 months is 33 percent, according to the median estimate of 10 economists in a Bloomberg survey. While the Economy Ministry sees 2.5 percent growth this year, GDP will probably expand 2.2 percent, according to the median estimate of 39 economists in a separate survey.

Russia is struggling amid meager growth in investment, Economy Minister Alexei Ulyukayev said Jan. 29. Fixed-capital investment rose 0.3 percent from a year earlier in December after a 0.2 percent increase in November and a 1.9 percent drop in October, the Federal Statistics Service reported Jan. 27

Capital expenditure including value-added tax at OAO Gazprom fell to 782 billion rubles ($22 billion) in 2013 from more than 1 trillion rubles the previous year. The gas export monopoly, which built a biathlon center and energy infrastructure for next month’s Winter Olympics in Sochi, plans 701 billion rubles of capital spending this year.

‘Dramatic Reversal’

“A dramatic reversal happened last year,” Vladimir Pantyushin, a Moscow-based economist at Barclays Plc, said before the data release. “The main reasons are state companies’ investment, which fell primarily due to the completion of Olympic facilities, and household consumption, which began to gradually slow.”

Even as the economy lost steam, policy makers refrained from cutting borrowing costs, leaving the main interest rate unchanged for a 15th month in December as inflation held above their goal. The central bank is targeting a 5 percent increase in consumer prices this year.

“Additional fiscal measures from the government are unlikely,” said Vladimir Osakovskiy, the chief economist at Bank of America Corp. in Moscow. The central bank “might also fail to deliver any support on failure to meet the inflation target.”

Economic growth of 1.5 percent to 2 percent is becoming the “new norm” for Russia, Bank Rossii Chairman Elvira Nabiullina said in November. Russia should pin its hopes on an increase in investment as the central bank ensures price stability, the former presidential aide said.

Weaker expansion represents a higher risk than inflation, according to Ulyukayev. “I’m almost sure we have a good chance to keep inflation at less than 5 percent this year,” he told reporters Jan. 28.

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