Bloomberg News

Russian Second-Quarter Economic Growth Slows to 4%

September 07, 2012

Russia’s economy cooled in the second quarter as manufacturing, retail and extraction of natural resources slowed.

Gross domestic product advanced 4 percent from a year earlier, in line with the initial Aug. 10 estimate, the Federal Statistics Service in Moscow said today in an e-mailed statement. The economy expanded 4.9 percent in the first three months of this year, brining first-half growth to 4.5 percent.

The world’s largest energy exporter is facing slowing growth as the economic outlook deteriorates in China, its largest single trading partner, and the debt-ridden European currency bloc slides into a recession. The prospect of a stuttering economy in Russia poses a challenge to the central bank, which is trying to subdue price growth to 6 percent.

“Policy makers in Russia are likely to find themselves in something of a bind over the coming months,” analysts led by Neil Shearing at London-based Capital Economics said in a research note before the release. “While growth is starting to slow, inflation looks set to accelerate. For now it seems that inflation concerns will dominate the debate.”

Manufacturing output grew 2.9 percent in the April-June period from a year earlier, down from a 3.5 percent expansion in the first three months of this year, the service said. Mining growth eased to 0.5 percent from 2 percent. Retail and wholesale trade grew 6.9 percent, less than the first quarter’s 9.1 percent increase.

The Micex Index rose 1.7 percent to 1479.57 by 3:18 p.m. in Moscow, the most since April 20. The ruble strengthened against the dollar for a fourth day, appreciating 0.4 percent to 31.8229.

Kraft, Cadbury

Consumer brands are already seeing slower expansion in Russia. Kraft Foods Inc. (KFT:US), the producer of the eponymous macaroni brand and Cadbury chocolates, has seen growth easing in Russia, Chief Executive Officer Irene Rosenfeld said on an earnings call Aug. 2. Cosmetics maker Avon Products Inc. (AVP:US) also saw Russia weigh on its second-quarter results, Chief Executive Officer Sherilyn McCoy said Aug. 1.

Russia will probably grow 3.5 percent this year, Deputy Economy Minister Andrei Klepach said last month, upgrading the government’s earlier 3.4 percent prediction. Still, that’s less than the 3.8 percent to 4 percent expansion that Economy Minister Andrei Belousov projected in July.

Domestic demand has been the mainstay of economic growth this year as rising real wages and retail-loan growth of more than 40 percent boosted household purchasing power. Economic expansion slowed to 2.6 percent in July as consumers began saving more and investment slowed because of uncertainty over the global and domestic economic outlook, Maxim Oreshkin, chief economist at VTB Capital in Moscow, said in a research note.

External demand had a “significant negative impact” on GDP in the second quarter and will remain a drag for at least the third quarter, he said. Russia’s economic output will slow in the second half on lower government spending, a poor harvest and slower lending growth, according to Oreshkin.

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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