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Russia's growth slows to 1.2% in blow to Putin

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(Globalpost/GlobalPost)

Russia's economic growth was shown Friday to have slowed sharply in the second quarter despite efforts by President Vladimir Putin to reverse the trend before he hosts next month's G20 summit.

The first official growth reading from the Federal State Statistics Service dealt a heavy blow to the government by revealing that the economy had expanded at a rate of just 1.2 percent.

The reading is below both the first quarter's already-disappointing growth rate of 1.6 percent and the economic ministry's own second-quarter forecast of 1.9 percent.

The Federal State Statistics Service did not explain what prompted the slowdown in its brief two-sentence statement.

But analysts noted that the figure was part of a broader negative trend that began in 2011 after nearly a decade of rapid expansion during Putin's first two terms as president in 2000-2008.

"This is the slowest pace of expansion since the fourth quarter of 2009 and the sixth consecutive quarterly decline in (the) GDP" growth rate, the Moscow-based Renaissance Capital investment bank said in a note to clients.

"While we don't have a detailed breakdown of GDP components, it is likely that the poor number is driven by an across-the-board slowdown in consumption, investment and net exports."

The report is also certain to raise pressure on the central bank to cut interest rates in the coming months.

Governors at the bank decided earlier on Friday to keep the main interest rate unchanged at 8.25 percent for the 11th month running.

The bank -- led since June by Putin's close ally Elvira Nabiullina -- has been grappling with the dilemma of anaemic growth and inflation that has outpaced the year's 5.0-6.0 percent target.

But inflation slowed to 6.5 percent in July from 6.9 percent in June -- a positive trend that the central bank underscored on Friday.

Analysts predicted a main refinancing rate cut of at least 0.5 percentage points in the months to come.

Friday's central bank statement "provides some hints that the authorities are moving -- albeit slowly -- towards a looser policy stance," London-based Capital Economics said in a note to clients.

"We've pencilled in a 75 basis points reduction in key rates over the coming months," Capital Economics added.

Putin will be hosting the G20 summit in his native city of Saint Petersburg on September 5 with hopes of showcasing Russia -- its balance sheet helped by oil and natural gas exports -- as an example for Western powers that are now grappling with high unemployment and overwhelming state debt.

But the poor economic readings may throw a wrench into Putin's plans and underscore Russia's current standing as one of world's worst-performing emerging economies.

zak/rl

http://www.globalpost.com/dispatch/news/afp/130809/russias-growth-slows-12-blow-putin