Bloomberg News

Russian Economy Probably Slowed Last Year as Industry Lost Steam

January 31, 2012

Jan. 31 (Bloomberg) -- Russian economic growth probably slowed last year as the euro region’s debt crisis weighed on industrial production and capital flowed out of the world’s biggest energy exporter even as oil prices jumped.

Gross domestic product rose 4.1 percent after a revised 4.3 percent increase in 2010, according to the median forecast of 17 economists in a Bloomberg survey. Prime Minister Vladimir Putin estimated growth at 4.2 percent on Jan. 12. The Federal Statistics Service in Moscow will publish an initial estimate today or tomorrow.

Russia is recovering from an economic contraction of 7.8 percent in 2009, when commodity prices sank after the collapse of Lehman Brothers Inc. While retail-sales growth accelerated last year amid wage increases and a post-Soviet low in inflation, industrial-production growth slowed to 4.7 percent from 8.2 percent in 2010 as uncertainty over the euro crimped demand for exports of manufactured goods.

“Industrial production is in large part tied to trends on export markets and demand for the goods Russia exports,” Vladimir Osakovskiy, chief economist at Bank of America Merill Lynch in Moscow, said yesterday by phone. “The slowing world economy, including Europe, certainly has a negative effect on industrial output.”

The Micex stock index fell 17 percent in 2011 as net capital outflows more than doubled to $84.2 billion, according to a preliminary estimate by the central bank. The ruble weakened 4.9 percent against the dollar to 32.1475.

Oil Boost

Urals crude, Russia’s main export blend, averaged $109 a barrel in 2011, 40 percent more than the previous year’s $78 average. That helped the budget return to a surplus of 0.8 percent of GDP from initial forecasts of a shortfall.

Exports of raw materials such as energy and metals account for more than a quarter of Russian GDP, Putin wrote in an article published yesterday in the Vedomosti newspaper.

Higher energy prices benefited some of Russia’s largest oil producers, including OAO Lukoil, TNK-BP, and OAO Gazprom Neft, all of which are projected to have record profit last year, according to forecasts compiled by Bloomberg. OAO Gazprom, Russia’s gas export monopoly and largest company, is also forecast to record its biggest-ever profit in 2011.

Putin, who is seeking to return the Kremlin through a March 4 presidential vote, says Russia needs to grow at least 6 percent a year to become one of the world’s five largest economies and should be less reliant on energy exports.

Retail Surge

Retail sales jumped 7.2 percent in 2011, faster than the previous year’s 6.3 percent increase, as consumer prices rose at the slowest pace since the collapse of the Soviet Union two decades ago. Inflation totaled 6.1 percent last year, according to the central bank, which is seeking to trim that to 6 percent in 2012.

OAO Magnit, the country’s largest food retailer by market value, was among the companies that benefited from the surge, posting a 20 percent gain in net income last year.

“Domestic demand rose thanks to lending growth, the pre New Year’s mood and higher incomes toward the end of the year,” Ksenia Yudaeva, chief economist at OAO Sberbank in Moscow, said yesterday in an e-mailed response to questions.

The International Monetary Fund on Jan. 24 cut its forecast for Russian growth to 3.3 percent in 2012, saying the global economy poses risks. GDP will expand 3.5 percent this year and 3.7 percent in 2013, according to the median estimates of 17 economists in a Bloomberg survey.

--With assistance from Zoya Shilova in Moscow. Editors: Andrew Langley, Balazs Penz

To contact the reporter on this story: Scott Rose in Moscow at rrose10@bloomberg.net

To contact the editor responsible for this story: Balazs Penz at bpenz@bloomberg.net


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