http://www.businessweek.com/news/2013-04-15/putin-seeks-to-skirt-recession-risk-with-government-growth-plan

Bloomberg News

Putin Seeks to Skirt Recession Risk With Government Growth Plan

April 15, 2013

Russian President Vladimir Putin called for a plan to revive growth after his economy minister warned of the threat of recession as companies cut investment and export demand wanes.

Putin called on Prime Minister Dmitry Medvedev to devise a plan to aid “shoots” of growth, according televised comments today. Medvedev is due to address lawmakers on April 17. The Economy Ministry last week lowered its forecast for this year’s expansion and its head, Andrei Belousov, said that while that’s not the main scenario, Russia risks sliding into a recession without stimulus measures.

Russia’s $2 trillion economy is growing at the weakest pace since a 2009 contraction as Europe’s debt crisis prompted companies to cut investment and the government scaled back spending following elections. The Economy Ministry now predicts 2.4 percent growth this year, rather than its earlier projection of 3.6 percent. The slowdown is hurting incomes, Putin told Medvedev today.

“The Russian leadership always gets worried when growth slows to below 3 percent, because below that level they think people won’t get sufficient income,” Barbara Nestor, an emerging-markets strategist at Commerzbank AG in London, said by phone today. “When that happens, they deploy whatever they can. And first-quarter growth may indeed have been around zero.”

Ruble, Stocks

The ruble has weakened about 2.2 percent against the dollar in the past month, its second month of decline and the worst performance among more than 20 emerging-market currencies tracked by Bloomberg in that period. The ruble lost 0.8 percent to 31.3355 per dollar at 5:38 p.m. in Moscow.

The Micex Index (INDEXCF) sank 2.3 percent to 1,353.57, the lowest intraday level since July 25, after losing 2.2 percent last week.

While figures released today showed industrial production unexpectedly expanded in March for the first time this year, output was unchanged in the first quarter from a year earlier. The Economy Ministry’s growth projection compares with Medvedev’s medium-term target of 5 percent.

Under outgoing Chairman Sergey Ignatiev, Bank Rossii this month took the biggest step toward easing monetary policy since raising all rates in September. Policy makers cut some borrowing costs on less frequently used credit instruments after the slowdown has sparked calls by top Cabinet officials for lower borrowing costs.

High interest rates and a “very strong decline” in the estimate for natural-gas exports are the main reasons for a lower growth forecast for this year, Belousov told reporters April 12.

Rosneft, Gazprom

Companies, such as OAO Rosneft (ROSN) and OAO Gazprom (GAZP) are revising their investment plans, Belousov said. Gazprom plans to cut capital expenditures by 35 percent this year from 2012, his deputy, Andrei Klepach, said.

Subduing consumer-price growth should remain the priority of monetary policy, Elvira Nabiullina, the next chairman of Russia’s central bank, told lawmakers April 9, when the lower house of parliament confirmed her nomination to replace Ignatiev in June.

While Russia has “room to maneuver” in terms of easing rates, a reduction would require slowing growth and higher unemployment and should be made based on a full analysis of the situation, Nabiullina said.

To contact the reporter on this story: Agnes Lovasz in London at alovasz@bloomberg.net

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


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