Uncharacteristically, Russia's Federal State Statistical Service released a very preliminary estimate of the development in the headline GDP figure in the second quarter well ahead of the usual schedule, leaving all details on the developments by sector-of-origin and by end-use to subsequent releases of revised estimates. The flash estimate put the downturn in GDP in the second quarter measured year-on-year (y/y) at 10.9%, at least half a percentage point further down than most analysts had expected. On a quarter-on-quarter (q/q) basis, GDP was up 7.5%, but these figures are not adjusted for seasonality or differences in the number of working days. GDP was down a slightly less drastic 9.8% y/y in the first quarter.

The disappointing news on the second-quarter result contrasts with recent readings of some leading indicators as well as claims from some highly placed Russian officials that the economy might already have been on the mend in June. The rouble has gained against the U.S. dollar and euro and stabilised at a higher plateau in line with oil prices and the equity market has been on the rebound. The purchasing managers surveys sponsored by VTB Capital and RosStat's quarterly consumer survey all have suggested that the assessment of recent economic performance and anticipations for the next six to twelve months have improved, although they are still indicating contraction but at a much reduced pace. The unemployment rate slipped back somewhat in June (although this may reflect individuals who have despaired of finding and job and have left the labour force). President Dmitry Medvedev, Prime Minister Vladimir Putin and their deputies have all maintained that the worst is well behind them in terms of the faltering economy. In fact, the y/y decline in manufacturing output in June was more moderate than the average for the first half, but otherwise the positive signs have not been translated yet into real economic developments.

Outlook and Implications

Dwindling export receipts, a severe credit crunch and badly eroded business and consumer confidence plagued the Russian economy through the first half of 2009. The second-quarter result brings the y/y decline in GDP in the first six months to 10.4%. Even in the crisis year of 1998, GDP experienced a decline of a much more moderate 5.3%. IHS Global Insight currently sees two more quarters of y/y decline in GDP, but at a slowing pace so that the drop in GDP for the full year 2009 would come in at 7.5% with the prospect of only 1.5% growth in 2010, hardly what one could call a robust recovery. Even this gloomy prospect has downside risks. Should a new wave of loan defaults hit the bank sector, the government has pledged only to bail out the top 65 or so out of around 1,100 Russian banks. Even now, banks remain hesitant to lend, choosing instead to bolster their reserves in order to be able to ride out such an occurrence. The share of non-performing loans has continued to rise. The spectres of potentially burgeoning inter-enterprise arrears and wage arrears still loom as does rising unemployment, which is a lagging indicator. On the positive side, the government has committed to strong fiscal stimulus and the Central Bank of Russia will continue to boost liquidity and press commercial banks to step up lending.

Global Insight (Reino Unido)