Russian Economy Posts First Growth on Annual Basis Since 2008

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Mar. 9 – The Russian economy grew last month on an annual basis for the first time since November 2008, an indicator derived from service and manufacturing surveys based on opinions of leading Russian corporations’ managers, executed by the VTB Capital, showed.

The economy of the world’s largest energy exporter expanded 0.5 percent after shrinking 0.3 percent in January. The slump bottomed out in June, when output fell 10.8 percent, according to VTB Capital data.

“The Russian economy is continuing to expand, although at a slower pace than at the end of 2009,” Alexandra Yevtifyeva, senior economist at VTB Capital, said in the report. “The greatest cause for concern is the recent weakness in new business orders in both sectors of the economy and the worsening employment conditions in manufacturing.”

Last year’s surge in oil prices bolstered state finances as the price of Urals crude more than doubled from a low of US$32.34 in December 2008. Industrial output and retail sales also boosted gross domestic product, which rose a seasonally adjusted 0.3 percent in January from the previous month, said Deputy Economy Minister Andrei Klepach on February 25.

Russia’s GDP fell a record 7.9 percent last year.

“Growth is supported by a consumer demand”, said Klepach. “Against absence of investments, the basic driver of consumer demand supported by growth of real incomes”, Yevtifyeva agrees, “pensions grow, inflation decreases”. Annual inflation in February eased to 7.2 percent. Following the results of a year the VTB Capital expects economy growth on 4.9 percent, the official forecast of Ministry of economic development and trade — 1.3 percent to 3.1 percent depending on the scenario.

“The first two months of 2010 suggest that marginal annual growth of gross domestic product will be achieved in the first quarter,” VTB Capital said.

Frail investment demand and rising unemployment remain the “weak links” of the economic recovery, Klepach said. Domestic demand remains “unstable” and below pre-crisis levels even as the economy has recently posted improvements in output and real disposable incomes, the Central Bank said in a February 19 report.

VTB Capital calculates the indicator by using output measures from its Purchasing Managers’ Index, which are surveys of business conditions in manufacturing and services industries.

“At the same time, the positive tendencies have unstable character,” Elvira Nabiullina, Minister of Economic Development and Trade, said a month ago in a conference in Irkutsk. “Economic and industry growth in one sector are combined with a fall in others. Investments, retail trade and credit activity do not yet drive to stable positive dynamics.”

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