Russia Feels Economic Growth Limits Again After Short-Lived Acceleration

Updated on
  • GDP grew annual 1.8% last quarter, missing survey median of 2%
  • Industrial output, seasonal effects seen driving weaker result

Russia’s economy slowed more than forecast despite a rally in oil, its chief export, ending three quarters of accelerating growth that followed the country’s worst recession this century.

Gross domestic product added an annual 1.8 percent in the third quarter, down from 2.5 percent in the previous three months, the Federal Statistics Service said on Monday, citing preliminary data, which don’t include a breakdown. The result missed a median estimate of 2 percent in a Bloomberg survey of 19 analysts. 

Capital Economics said the weaker-than-expected performance was probably caused by slow growth in industrial production, as well as one fewer working day in this year’s third quarter than in the same period of 2016. Adjusting for the calendar difference, the expansion reached 2.4 percent from a year earlier, according to Goldman Sachs Group Inc.

Despite a government vision of an economy remade by the crash in energy prices and a currency crisis that followed, Russia is increasingly resembling its old self as consumer demand comes to the fore. Expansion is falling back to the limit of what the central bank believes the economy can accomplish, with gains in GDP forecast to lose more momentum and slow slightly every quarter next year.

“The slowdown in GDP growth in the third quarter was driven entirely by weakness in the industrial sector,” said William Jackson, an analyst at London-based Capital Economics, which cut its full-year forecast to 1.8 percent from 2.3 percent after the report. “In contrast, other monthly activity figures –- covering the retail, construction and agricultural sectors –- all strengthened.”

The ruble, which gained 2.5 percent last quarter against the dollar, briefly extended losses after the data release and traded 0.4 percent weaker at 59.4525 versus the U.S. currency as of 8:12 p.m. in Moscow.

Incomes, Spending

Although slow to recover after incomes collapsed, household spending jumped 4.3 percent in the second quarter from a year earlier, still lagging behind a 6.3 percent increase in investment. But consumer confidence is now improving thanks to more than a year of gains in real wages, a stronger ruble and an unprecedented decline in inflation. Retail sales are on the rise after a record contraction of 27 months ended last April.

Even with the rebound in crude, net exports have been a drag after a spike in import growth. Bank of Russia Governor Elvira Nabiullina has warned that, without overhauling the economy, not even oil at $100 a barrel would lift medium-term gains in GDP beyond a range of 1.5 percent to 2 percent. Global benchmark Brent crude surged 20 percent in the third quarter, a run that’s continued and pushed it over $60 last month.

“This pace looks sustainable, but that’s just the problem,” said Scott Johnson, an economist with Bloomberg. “Russia could be stuck in a low gear without some combination of good luck and good policy.”

— With assistance by Zoya Shilova, and Andre Tartar

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