Russian GDP Growth Slows Less Than Forecast on Harvest

Russia’s economy slowed less than forecast by analysts in the third quarter as an improved harvest cushioned the impact of tumbling oil prices and U.S. and European sanctions over the crisis in Ukraine.

Gross domestic product grew 0.7 percent from a year earlier after expanding 0.8 percent in the previous three months, the Federal Statistics Service in Moscow said today, citing a preliminary estimate. That was above the median forecast for 0.3 percent by 21 analysts in a Bloomberg survey.

The economy of the world’s biggest energy exporter decelerated for a third quarter, deepening its worst slowdown since a 2009 contraction. The Bank of Russia said this week that growth may be zero next year as the economy succumbs to sanctions imposed over Ukraine, while the plummeting ruble stokes inflation and lower oil prices erode export revenue.

“This is recession delayed, more than anything else,” Neil Shearing, chief emerging-markets economist at Capital Economics Ltd., said by e-mail. “I don’t think it’s a sign of economic resilience. More of the fact that it pre-dates some of the latest developments.”

There’s a 70 percent chance of a recession in the next 12 months, according to the median estimate of 27 economists in a Bloomberg survey Oct 30. That’s the highest reading since Bloomberg started tracking the figure two years ago, up from 60 percent last month.

Harvest, Industry

President Vladimir Putin said last month that Russia may reap a record grain harvest this year. The crop may have bolstered the GDP figure for the third quarter, which was also helped by industrial output, according to Evgeny Nadorshin, chief economist at AFK Sistema.

In September, agricultural production jumped more than 17 percent on an annual basis, according to UralSib Capital.

The Micex Index of 50 stocks remained down after the release and traded 1 percent lower at 1,499.28 as of 5:04 p.m. in Moscow. The ruble slipped 1.1 percent against the dollar. It’s depreciated 23 percent in the past three months against the dollar, the worst performance among more than 170 currencies tracked by Bloomberg. The central bank canceled regular interventions and said it would temporarily limit ruble liquidity to support the currency.

The currency’s slide has been exacerbated by sanctions the U.S. and its allies imposed over the crisis in Ukraine, which accelerated capital flight and fueled inflation. With oil prices near a four-year low, Putin is struggling to ignite growth.

Economy Crimped

“The Russian economy has been crimped by years of underinvestment in non-energy sectors, alongside sluggish external demand,” Johannesburg-based Tradition Analytics said in an e-mailed research note, predicting “sub-par” growth into 2015. “Internally, final consumption demand remains constrained against a backdrop of elevated inflation, declining household credit growth and the tighter interest rate landscape.”

The Bank of Russia has increased its key rate four times this year to 9.5 percent last month from 5.5 percent in February, putting further pressure on the economy.

GDP will expand 0.3 percent and inflation will remain above 8 percent this year, the central bank estimates. The economy will stagnate in 2015, with oil prices averaging $95 per barrel and inflation slowing to 6.2 percent to 6.4 percent, according to the monetary authority’s base-case scenario published Nov. 10, which assumes sanctions staying in place through the end of 2017.

“The last rate increase is unlikely to seriously curtail inflation, but it will negatively affect the already-weak economic growth,” said Olga Sterina, an analyst at UralSib Capital in Moscow. “The current ruble weakening also has more minuses than pluses for the economy.”

Before it's here, it's on the Bloomberg Terminal.