GDP Posts Weakest Growth in 3 Years

Economic growth fell to its slowest rate in three years in the third quarter, at 6.2 percent, the State Statistics Service reported Tuesday, and economists say even lower growth is in store for 2009.

Actual GDP growth in the quarter missed the Economic Development Ministry's forecast of 7.1 percent, driven by significantly slower growth in the construction, retail, transport and communications sectors.

The decline continued a slide from 8.5 percent GDP growth in the first quarter and 7.5 percent in the second, and if the trend continues the final number for the year could be in the 6 percent range.

"Next year's GDP growth could range from negative 5 percent to plus 5 percent, depending on what happens to oil prices and the steps taken by the Russian government," said Yevgeny Gavrilenkov, chief economist at Troika Dialog. "If it continues to throw away currency reserves to defend the ruble, Russia may face a fiscal deficit and zero economic growth."

He said allowing the ruble to depreciate is one step that could be taken to prop up growth numbers.

"In the past, the Russian economy grew even with oil prices of $30, $40 and $50 per barrel but at a different exchange rate," he said. "In the current environment, Russia's goal should be to achieve positive economic growth and avoid a fiscal deficit."

In year-on-year terms, growth in the fourth quarter could end up at zero, partly as a result of slower production growth and partly because the number was strong in the final quarter of last year, said Yekaterina Malofeyeva, chief economist at Renaissance Capital.

She said she expects growth this year to finish above the 6 percent mark — at 6.2 percent — and that next year's figure could range from zero to 3 percent.

"If oil prices average $70 a barrel next year and the ruble is allowed to depreciate, GDP growth could reach 3 percent," Malofeyeva said. "Otherwise, it could be flat."

Although the Economic Development Ministry has yet to release an official forecast, in recent informal comments it has put the number at 3 percent to 3.5 percent if oil prices average $50 per barrel for the year.

But economists say conditions have been shifting so rapidly that providing anything resembling an accurate forecast for 2009 would be difficult until all the numbers for the final quarter of this year have been released.

The Economic Development Ministry said Monday that it was revising its forecast for manufacturing growth for the year downward, from 5.2 percent to 2.9 percent. The figure for the first 10 months of this year was 4.9 percent, so the ministry's forecast suggests that it is expecting disastrous results in November and December, with production dropping by over 10 percent.

Gavrilenkov said he believed that a 2.9 percent production forecast was overly pessimistic but, if accurate, would mean that the country is entering a severe depression.

He added that losses on the manufacturing side could be balanced somewhat by growth in the service sector, as consumer spending has remained relatively strong. As such, he said he expected GDP growth of 6.8 percent to 6.9 percent this year.

Natalya Orlova, chief economist at Alfa Bank, said she was surprised by how low the production numbers were.

"Given that the October numbers showed there was essentially no growth (0.6 percent), we originally assumed a drop in production of 2 to 3 percent in November and December, which would still imply a growth rate of around 5 percent for the year," Orlova said. "But if we are to believe the numbers from [Economic Development Minister] Nabiullina, with a drop of more than 10 percent in November and December, then the situation seems more serious."