Russian growth forecast slashed by third

File Photo of Cash, Coins, Line Graph

(Interfax – MOSCOW. April 12, 2013) Deputy Economic Development Minister Andrei Klepach officially unveiled his ministry’s new 2013 forecasts for the Russian economy on Thursday.

The reduction of the GDP growth forecast was anticipated, but the scale of the decrease, by 1.2 percentage points to 2.4%, came as a surprise. In its December forecast, the Economic Development Ministry projected that GDP growth would accelerate slightly to 3.6% in 2013 from 3.4% in 2012.

That the economy is not accelerating, but stagnating with a risk of slipping into recession became finally clear at the end of February.

The ministry’s economic monitoring report for January-February notes that in February the economic growth that had been observed since November 2009 was virtually exhausted. GDP increased just 0.1% compared with February 2012 and compared with annualized growth of 1.6% in January. Annualized GDP growth in January-February was just 0.9%.

Against this backdrop, the GDP growth forecast of 3.6% already seemed a little removed from reality, but most analysts’ projections still hovered around growth of 3%. The last consensus forecasts of economists prepared by Interfax at the end of March put economic growth in 2013 at 3.0%.

Oil price no longer panacea

The reduction of the GDP growth forecast amid a substantial increase in the oil price forecast, to $105 per barrel, was particularly pointed.

The previous forecast was based on an average annual price of $97 per barrel for Urals crude. Even in 2012, when the average annual oil price was $110.50, it was somewhat surprising to hear the ministry forecast economic growth of 3.6% in 2013 with an anticipated reduction in the oil price of $13.50.

Now the picture is less jarring – the oil price is only expected to drop by $5.50 per barrel and the GDP growth rate is already more consistent with the sluggish dynamic.

However, the increase in the oil price forecast led to the increase of the projection for exports in 2013 to $506 billion from the $496 billion forecast in December. The forecast for imports in 2013, however, has been lowered to $355 billion from $364 billion.

As a result, the Economic Development Ministry has raised its forecast for the country’s trade surplus this year from $132 billion to $151 billion.

According to Economic Development Ministry data, Russian exports totaled $529.3 billion in 2012, imports came to $335.4 billion, and the trade surplus was $193.9 billion.

Industry stagnating

The situation in Russian industry has once again demonstrated the importance of this sector for the country’s GDP. Adjusted for seasonal and calendar factors, industrial production in February slumped for the second consecutive month, slipping 0.1% after falling 1.6% in January.

In annual terms, industrial production also contracted for two consecutive months, dropping 2.1% in February after a decline of 0.8% in January.

This led the Economic Development Ministry to slash its forecast for industrial production growth in 2013 to 2% from 3.6%. And Klepach said that even this forecast is “optimistic.”

Industrial production grew 2.6% in 2012, and the consensus forecast prepared by Interfax at the end of March projected growth of 2.4% in 2013.

Investment, retail sales growth expected to slow

Capital investment, adjusted for seasonal and calendar factors, rose 1.0% in February after edging up 0.3% in January, the Economic Development Ministry estimates.

Year-on-year, investment edged up 0.3% in February after increasing by 1.1% in January, making the ministry’s earlier forecast of 6.5% investment growth in 2013 look not just overly optimistic but unrealistic.

Klepach said the investment growth forecast has been lowered to 4.6%, which is in line with analysts’ expectations. Their consensus forecast is also that investment growth will slow to 4.6% this year from 6.6% in 2012.

Retail sales declined 1.5% in January on a seasonally adjusted basis following five straight months of growth at the end of 2012. Retail sales declined 0.6% in February.

Annualized growth in retail sales slowed to 2.5% in February from 3.5% in January and 5.0% in December 2012, indicating the retail market is reaching saturation levels and can no longer maintain the 5%-7% pace seen in previous years. Retail sales grew 3.0% in January-February 2013 on an annualized basis, compared with 7.7% for the same two months last year.

In light of this, the ministry predictably lowered its retail sales growth forecast for 2013 to 4.3% from 5.4%. The consensus forecast of economists is that retail sales growth will slow to 4.8% in 2013 from 5.9% in 2012.

Capital outflows

Expectations that net capital outflows will come to an end and Russia will become a net importer of capital remain unrealized.

The Central Bank said on April 3 that net capital outflow was an estimated $25.8 billion in Q1 2013, down from $33.6 billion in the same period of last year. Net capital outflow slowed to $54.1 billion in 2012, from $80 billion in 2011.

The Economic Development Ministry, in light of this, revised its earlier forecast for capital outflows of zero to $10 billion in 2013 upward to $30 billion-$35 billion.

The Central Bank is traditionally more conservative in revising its forecasts. Central Bank chief Sergei Ignatyev said last week that the bank does not at the moment intend to revise its capital outflow forecast, which is $10 billion.

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