Russia GDP Probably Eased Last Quarter as EU, China Faded

Russia’s economic expansion probably eased in the second quarter as slowing growth in China and Europe’s debt crisis curbed demand for commodities exports.

Gross domestic product rose 4 percent from a year earlier, the slowest pace since the same quarter of 2011 and down from 4.9 percent in the January-March period, according to the median estimate of 16 economists surveyed by Bloomberg. The Economy Ministry’s estimate is 3.9 percent. The Moscow-based Federal Statistics Service will release the data at 4 p.m. in Moscow.

Russia’s economy is facing challenges as growth slows in China and the European Union, its two largest trading partners. Russian industry growth decelerated to 1.9 percent in June from 3.7 percent the previous month, easing more than economists forecast. Fixed-capital investment rose 4.7 percent, down from 7.7 percent.

“A slowdown in the second quarter and further in the second half is certainly on the cards,” said Dmitry Polevoy, chief economist for Russia and Kazakhstan at ING Groep NV in Moscow. The contribution of foreign sales to economic growth “looks less certain with exports hit by faltering demand from the EU.”

The Micex Index (INDEXCF) of 30 stocks fell 0.8 percent to 1,444.92 at 12:24 a.m. in Moscow. The ruble retreated 0.3 percent to 31.8677 against the dollar.

Europe, China

The EU, Russia’s largest trading partner, is battling to stanch a debt crisis that’s threatening to trigger another global slowdown. Euro-area GDP will probably drop 0.3 percent this year before rising 1 percent in 2013, the European Commission said May 11.

Economic growth in China, which accounts for 10 percent of Russian trade, eased to 7.6 percent last quarter, the weakest level in three years, lowering demand for imports such as metals.

“Industry has continued to slow -- this probably reflects troubles in European export markets, but may also be due to a strong ruble,” said Neil Shearing, chief emerging markets economist for Capital Economics.

OAO GMK Norilsk Nickel (MNOD), Russia’s largest miner, reduced second-quarter output of nickel by 8 percent from a quarter earlier, the company said in a July 30 statement. U.S. steelmaker Alcoa predicted last month that growth would be slower in Russia as European demand remains uncertain and prices are low.

Consumption Boost

Accelerating wage growth, slowing unemployment and consumer optimism at the highest level in almost four years are driving private spending, which accounts for half of Russia’s economy.

While “consumption growth is not slowing dramatically, current growth isn’t enough to boost the second-quarter GDP figure,” Vladimir Miklashevsky, an economist at Danske Bank A/S (DANSKE) in Helsinki, said by e-mail. “We don’t expect any acceleration in consumption growth as inflation is speeding up.”

Consumer prices grew at the fastest rate this year in July, accelerating 5.6 percent from a post-Soviet low of 3.6 percent the previous month. That’s pushed inflation near the central bank’s target of 5 percent to 6 percent.

The world’s biggest energy exporter is the last major emerging economy to keep borrowing costs unchanged this year. The central bank left the refinancing rate unchanged today at 8 percent, holding it a quarter-point above the record low since December.

Inflation Risk

Bank Rossii highlighted “significant” inflation risks from a weaker harvest and higher interbank rates that constrain lending growth. The bank dropped wording from last month’s statement that money market rates were at an acceptable level for the “nearest future.”

The government may revise up this year’s economic-growth projection to 3.8 percent to 4 percent, more than the previous 3.4 percent forecast, Economy Minister Andrei Belousov said July 20. GDP grew 3.9 percent in the second quarter, the ministry estimated last month.

To contact the reporter on this story: Milda Seputyte in Vilnius at mseputyte@bloomberg.net

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