June investment slowdown troubling, but GDP growth forecast unchanged – Ulyukayev

(Interfax – KALUGA, July 23, 2013) Russian Economic Development Minister Alexei Ulyukayev considers the 2.4% slump in investments in fixed capital in June, factoring in seasonal and calendar factors, is a worrisome sign, but there is an improvement trend and the 2.4% GDP growth forecast is not changing.

“Generally, of course, the sign is troubling,” Ulyukayev told the press on Tuesday. “I’m confident that the trend – the second [quarter] was better than the first – will continue. In the third we will move to a figure more than 1.9% [GDP growth in Q2], likely around 2%,” he said, adding that in his view the economy will “fit in” the GDP forecast for 2013.

Ulyukayev also said that right now the Russian economy is undergoing an output break, meaning that the actual output is smaller than its potential.

“The potential for [economic] growth is bigger… There is a small break in output, that is, actual output is smaller than its potential. Consequently, in this situation measures for monetary-fiscal stimulation could in principle work. This does not men that they need to be adopted now, but in principle their adoption is meaningful, they can work,” he said.

Earlier this month, Central Bank chief Elvira Nabiullina said the Bank sees a small gap between potential and actual output, which could last for a certain period of time.

“Signs of a drop in capacity utilization and a small increase in seasonally adjusted unemployment emerged in the second quarter. The Central Bank estimates the small output gap will persist for a year, which means the absence of inflationary pressure on the part of demand,” Nabiullina said.

The absence of a gap between potential and real output is the Central Bank’s main argument in the dispute with advocates of rate cuts. But ever since its March rate-setting meeting, the phrase “gross output remains close to its potential level” has been omitted from Central Bank commentaries. Even so, the Central Bank did not change its rates that month, or in April or in July. Ulyukayev has said the omission of the phrase from rate-decision commentaries has indicated a lack of certainty over the preservation of the balance between potential and real output.