Russian Econ Ministry expects GDP growth to quicken to 2.1% in Q2

(Interfax – MOSCOW. April 15, 2013) The Russian Economic Development Ministry expects GDP growth to accelerate to 2.1% in Q2 2013, from 1.1% in Q1, and to around 3% in H2 2013, Deputy Economic Development Minister Andrei Klepach told reporters.

“The slowdown in economic growth is here for all to see. But we work on the basis that there’ll be a turnaround towards faster growth rates. We expect growth of around 1.1% for the first quarter and 2.1% for the second quarter, and around 3% for the second half. Here we work on the assumption that growth will accelerate, including in the second half,” Klepach said.

He said economic growth has been slowing since the second quarter of 2012, which he linked to exports. The ministry expects exports to slump 4.5% in nominal terms in 2013 compared to 2012 and to show zero growth in real terms.

The ministry previously expected exports to grow in real terms, but the first two months of the year saw a drop in exports of crude oil, natural gas, metals and timber, so even zero growth for the year will require substantial growth in foreign demand for Russian commodities in the second half.

Commenting on the forecast for investment in 2013, which the ministry slashed to 4.6% from 6.5%, Klepach said the “new estimate is still optimistic and means that we will manage to localize or contain the decline in the natural monopolies sector.” As an example he cited gas giant Gazprom (RTS: GAZP), whose investment program calls for a 35% reduction in capital expenditures in 2013 compared to 2012.

“We are assuming that Gazprom might after all adjust its program and the drop will be less. Secondly, the issue of investment is one of confidence. Right now many companies are considering the possibility of carrying over and pushing back investment projects until the situation and outlook become clearer,” Klepach said.

He said government investment in 2013, both regional and federal, will decrease compared to 2012.

“We assume that the government will after all give the go-ahead to fairly major infrastructure projects, because there are supposed to be proposals for transport projects related to the World Cup football championships, a decision is supposed to be made in regard to high-speed railways. This is not this year, but already in 2014 and onward, but the decisions of companies and their actual investments this year will depend on these plans for 2014-2016,” Klepach said.

Investment growth of 4.6% this year would be the “effect of retained confidence, if businesses will seriously push back their investment plans, growth might amount to about 3%,” he said.

Commenting on the growth forecast for retail sales in 2013, he noted that the ministry has lowered it to 4.3% from 5.4%. “But if you take the conservative version, that this the continuation of the current trend, and in the first months [of the year] grow was about 3%, then for the year we’ll get about 3.8% growth,” Klepach said.

“Here we are expecting that, despite the slowdown in growth of consumer lending, households will be more confident in their consumer behavior and will not rush to increase savings, but will spend, both on housing and on the consumer market,” Klepach said.

He noted that the forecast for growth of real wages in 2013 has actually been raised to 4.5% from 3.7%, but the forecast for growth of real personal incomes has been lowered to 3.0% from 3.7%.

Asked whether he sees any risk of the Russian economy slipping into a recession, Klepach said: “There is a risk, but I don’t think that our economy will slip into a recession.” He recalled that a recession means that the economy has contracted for two consecutive quarters.

“Qualitatively, we still expect growth both for investment and retail sales. If we’re talking about industry, where the first quarter will apparently be in negative territory, we assume that the second quarter will probably be stagnation, but in the third and fourth quarters there will be industrial growth,” Klepach said.

As for expectations that growth will accelerate in the second half of 2013 and in subsequent years, he said they are “associated with the fairly active policy of the government and changes in the behavior of companies and households.”

“If we’re talking about the conditions for acceleration, then in our view support for lending to the economy is very important here. We assume that there will be an acceleration of growth in loans to nonfinancial corporations. There is no such acceleration now,” Klepach said.

In this regard, he said, there is a need to create the conditions for lower interest rates. However, he said the big role in this is played “not so much by the Central Bank’s refinancing rate, as the Central Bank’s operating rates, the duration of refinancing operations.”

In addition, he said, it is necessary to investment money in the National Wealth Fund (NWF). “We believe that this is a resource that should be actively invested this year already,” Klepach said.

He said that in order to ensure the necessary investment growth, more will be needed from the NWF than the 100 billion rubles on which a decision has already been made.

Asked why GDP growth forecasts were also lowered for 2014 and 2015, to 3.7% from 4.3% and to 4.1% from 4.5% respectively, Klepach said that forecasts had been lowered for gas exports and capital investment, and that there was previously a more optimistic view concerning the general situation on foreign markets.

“Now we have factored in a decrease in prices for oil and I would even call the current forecast fairly optimistic. There are fairly considerable risks that prices for oil might turn out to be lower. In this sense, the foreign economic impact will be less favourable than we expected earlier,” Klepach said.

“Although an oil price of $100 and even a little more than $90 is still a good price, but a good price only if we actually carry out a very serious internal restructuring,” Klepach said. “If we don’t do it within two-three years, then the situation for many sectors will be completed different,” he added.

The Economic Development Ministry has raised the average annual oil price forecast for 2013 to $105 from $97 per barrel, left the forecast for 2014 unchanged at $101, lowered the forecast for 2015 to $100 from $104, and left the forecast for 2016 at $100.