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Russian Growth Slightly Beats Expectations in Second Quarter

Russian Growth Slightly Beats Expectations in Second Quarter

(Bloomberg) --

Russia’s economy expanded 0.9% in the second quarter as consumer demand remained weak, but mining and manufacturing showed a modest pickup. The Economy Ministry said the pace will accelerate in the second half of the year.

The latest growth figure -- a preliminary estimate -- came in just above estimates in a Bloomberg survey, which forecast an expansion of 0.8%. The economy grew 0.7% in the first half of the year, according to the Federal Statistics Service. An increase in spending on big investment projects is expected to boost growth in the second half.

Russian Growth Slightly Beats Expectations in Second Quarter

Mining, manufacturing and an increase in air travel helped spur growth in April-June, while wholesale trade had a negative impact, Pavel Malkov, the head of the agency said at a press briefing in Moscow.

The Economy Ministry later reported that growth in the second quarter was held back by weak domestic demand amid tight monetary and fiscal policies, as well as the slowdown in the global expansion, which hit Russian exports. Still, the ministry said growth is expected to pick up to 1.6%-1.8% in the second half, boosted by increased government spending and the effect of recent central bank rate cuts, allowing the full-year expansion figure to hit the government’s target around 1.3%.

What Our Economists Say:

‘Russia is struggling to regain momentum, with consumer demand still soft and global trade frictions dragging on the economy. But fiscal spending and rate cuts should fuel an acceleration in growth later in the year.”

Scott Johnson, economist, Bloomberg Economics

Key Insights

  • U.S. President Donald Trump’s trade war with China has weighed on global growth, knocking a key support from under the Russian economy just as officials were hoping to boost growth with a surge in spending.
  • The central bank lowered the benchmark rate twice this year and signaled more monetary easing to come as inflation decelerates.
  • Fitch Ratings Ltd. upgraded Russia to the second-lowest investment grade last week, citing strong fiscal policies. The ratings agency warned that weak growth could weigh on Russia’s outlook in the future.
  • The International Monetary Fund, which recently downgraded its 2019 growth forecasts for Russia to 1.2%, calculated that sanctions have shaved 0.2 percentage points off annual growth since 2014.

--With assistance from Zoya Shilova.

To contact the reporter on this story: Anya Andrianova in Moscow at aandrianova@bloomberg.net

To contact the editors responsible for this story: Gregory L. White at gwhite64@bloomberg.net, Natasha Doff

©2019 Bloomberg L.P.