Russia growth slows drastically in 1st quarter amid crude drop

Russian Prime Minister Dmitry Medvedev makes his annual address to lawmakers in the lower house of Russia’s parliament, the State Duma, in Moscow yesterday. Medvedev told the deputies that Russia’s slowdown was caused in large part by poor economic performance among its main trading partners abroad.

AFP/Moscow

Russia yesterday reported a sharp slowdown in growth over the first three months of the year to 1.1% from 4.9% in the same period of 2012, amid growing alarm over the state of its economy amid a slew of poor data and falling oil prices.

Deputy Economy Minister Andrei Klepach said the estimate came in after downward revisions for the figures for January and February—a month in which the economy contracted by 0.4%.

But he added that a stronger March helped Russia’s overall performance in the first quarter.

“By our estimate, GDP grew in March by 2.3% in annual terms, and we confirm our estimate of 1.1% for the first quarter,” the RIA Novosti news agency quoted Klepach as saying.

The estimate was released a week after Russia slashed its 2013 growth forecast to 2.4 from 3.6% due to a slowdown in both industrial output and consumer demand.

Klepach spoke at the same time as Prime Minister Dmitry Medvedev was delivering an economic performance review before the lower house of parliament.

Medvedev told deputies that Russia’s slowdown was caused in large part by poor economic performance among its main trading partners abroad.

“The first months of the year show that the global trend toward slower growth remains in place,” Medvedev said in a speech lasting nearly two hours. “There are serious risks here.”

President Vladimir Putin—whose strong popularity ratings come from the prosperity brought by years of high prices for Russia’s energy exports—himself admitted on Monday that the world economy was in “crisis”.

He then instructed Medvedev to quickly assemble a meeting of ministers and Kremlin officials that could devise a strategy for pulling the country out of its economic malaise.

Medvedev said yesterday that the government already had a proper strategy in place.

“The government has its own vision of what must be done,” he said. “But these measures must be discussed in detail with the experts and the deputies.”

Economists also called Russia’s economic performance worrying.

“With growth easing in most trading partners, the fact that Russia has slowed is not surprising. But the magnitude of the slowdown is becoming increasingly worrying,” the London-based Capital Economics consultancy said in a research note.

It also noted that the slowdown actually began in the second half of last year after impressive growth figures for the first six months of more than 4%.

Yesterday’s report will put still more pressure on the central bank to cut the main interest rate from its current level of 8.25% for the first time in nearly eight months.

“We expect interest rate cuts to start materialising around June,” said chief Renaissance Capital economist Ivan Tchakarov.

“We are forecast cuts of 75 basis points by year-end, but think the risks are now slanted toward a larger reduction,” he noted.

But analysts also believe that Russia’s economic troubles will not be solved by monetary measures alone and will require a deep-rooted restructuring of the economy.

Russia still largely depends on its commodities exports and Renaissance Capital predicted a o1% hit on Russia’s gross domestic product growth should oil prices decline by $10 over the course of the year. Brent crude is currently trading at less than $100 a barrel.

Medvedev told parliament he understood the problem and would continuing to focus on eliminating corruption and improving the business climate—his two main missions when he was president in 2008-2012.

“We must use all our resources to respond to the problem in a timely manner,” he said.

“We must continue work on improving the business climate and economic efficiency as well as the social sphere.”