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. Last Updated: 07/27/2016

Klepach Says GDP Plunged By 9.5%

The economy plunged by 9.5 percent in the first three months of 2009 and might contract by 6 percent this year, Deputy Economic Development Minister Andrei Klepach said Thursday, painting a bleaker picture than the government had previously forecast.

The Economic Development Ministry is now reconsidering its forecast of a 2.2 percent drop in gross domestic product for 2009, Klepach said, calling a recent International Monetary Fund forecast of 6 percent "quite realistic," Interfax reported.

Klepach declined to give any exact figures.

Just weeks earlier, Klepach and other government officials had criticized as "overly pessimistic" a World Bank report that predicted GDP would fall by 4.5 percent this year.

Klepach got into trouble with Prime Minister Vladimir Putin in December for saying the economy would go into its first recession in a decade. Putin said economic growth would continue in 2009, and Klepach later retracted his statement.

The Economic Development Ministry had predicted earlier this month that the economy would shrink by 7 percent to 8 percent in the first quarter, but Klepach said Thursday that the figure had in fact hit 9.5 percent.

Klepach said risks for the economy were "higher than expected" because lending and construction had not revived as quickly as the government had hoped.

"We forecast that lending will grow by 7 to 8 percent, down from the previously expected 10 to 13 percent," Klepach said.

He said his ministry has raised its forecast for the average price of oil by $4 to $45 per barrel for 2009 but does not see inflation slowing down from the expected 13 percent for the year.

Klepach said retail turnover would show negative growth this year, compared to the previously expected growth of 0.3 percent. Turnover fell by 1.1 percent in the first quarter, while investment tumbled by 15 percent, according to the State Statistics Service.

"But we think that we reached the bottom in January and there will be a sort of rebound in the second quarter," Klepach said.

The rebound will be spurred by higher federal spending, increased lending and bigger revenues for exporters because of the effect of the -ruble devaluation, Klepach explained.

The economy in the second quarter, however, is still expected to fall by 8.7 percent to 10 percent, Klepach said.

Some market players suggested that Klepach's figure remained too optimistic.

"The data voiced by the deputy minister show that the economic fall in January was not the bottom," Rye, Man and Gor Securities said in a research note. "The revival of the economy will not be possible without a significant change in interest rates."

The Central Bank on Thursday cut the refinancing rate for the first time since 2007, to 12.5 percent from 13 percent. (Story, Page 5.) Klepach said the 0.5 percent difference would not affect the economy.

Some analysts called Klepach's figures too preliminary. "The Economic Development Ministry's figures are in part speculative," said Yevgeny Gavri-lenkov, chief economist at Troika Dialog.

The State Statistics Service will only have its results for the first quarter in May and will then adjust them several times as new industry and consumption data come in, Gavrilenkov said.

Klepach said his ministry had readjusted its GDP estimates for the first two months of the year, putting January's decline at 10.4 percent, compared to 8.8 percent previously, and February's fall at 8.7 percent, down from 7.3 percent.

The ministry lowered its annual GDP forecast from 0.2 percent to 2.2 percent in February.