Russia: Economy Continues to Underperform


GDP grew by a weaker-than-expected 1.2% (y-o-y) in Q3, owing to a lack of investment and depleted external demand. Attempts to curb the economy’s reliance on consumer spending and rebalance it towards greater investment have so far not been very successful, prompting our panel to reduce its 2014 GDP forecast. Latest indicators offer little sign of momentum, with retail sales cooling to 3.0% in September, from 4.0% in August. Moreover, industrial production – which has struggled to gain any traction in the year to date – advanced by just 0.3% (y-o-y) in September. On a positive note, October’s PMI for manufacturing climbed to a 12-month high of 51.8, offering some hope of a near-term improvement in activity. Prime Minister Dmitry Medvedev last month acknowledged growth in Russia to be largely artificial, spurred by preparations for the 2014 winter Olympics and 2018 World Cup. Some predict that Russia will lag global growth for the next two decades, identifying an over dependence on oil revenues and low productivity as key impediments to private sector investment.

The CPI unexpectedly rose to 6.3% (y-o-y) in October, from 6.1% in August. The central bank subsequently held the one-week auction rate – the new benchmark introduced in September – at 5.5% on November 8.


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