Russian GDP: celebrate cautiously
2012-02-01 16:05:09
Russia released a preliminary estimate for 2011 GDP growth on Tuesday – and at 4.3 per cent, it looks pretty healthy.
The figure crept ahead of analyst expectations, buoyed by a strong recovery in consumer demand over the year, while 2010 growth was revised upwards, also to 4.3 per cent. Renaissance Capital was cautiously bullish, calling the forecast “reason for a (modest) celebration”.
RenCap noted that Russia has now finally reached its pre-crisis level of output – but this took twice as long as its recovery from the economic contraction in 1998. That’s mainly because investment and net exports have been more sluggish this time round, exacerbated, of course, by the much more fragile state of the global economy.
Interestingly, though, consumption actually grew faster than after the previous slump. From RenCap:
Consumption behaviour really stands out. It has been much more resilient post-2008 than in the post-1998 crisis episode, despite the much more global nature of the former. This can be explained by the fact that Russia was in a much stronger fiscal position this time around to conduct countercyclical policy to cushion the impact of the global shock. In the more recent crisis, real government spending did not decline at all and that private consumption also weathered the crisis quite well. This is also at least partially due to more able and flexible macroeconomic management in the 2008 crisis.
Barclays Capital, meanwhile, said it expected Russia’s shift from exports to domestic consumption to deepen further. In particular, it highlighted the impact of several large-scale public projects – particularly the 2014 Winter Olympics, to be held in Sochi.
So, are things looking up for Russia? Neil Shearing at Capital Economics doesn’t think so – and says the country should expect a sharp slowdown in growth over the coming years.
For a start, as things stand, utility tariffs are still due to rise in July. Accordingly, any boost to household incomes from this month’s freeze will be temporary. More importantly, however, while Russia is not as open as some economies in Eastern Europe, it is still vulnerable to the protracted recession we expect in the eurozone. Industry already seems to be slowing on account of weaker external demand.
The much bigger risk, however, is a fall in oil prices. Russia saw net capital outflows of $84.2bn in 2011, 5 per cent of GDP. The government now requires an oil price of $115 per barrel to balance its budget. Yet if, as Shearing predicts, the price of Brent Crude falls to $85 per barrel by the end of the year, Russia’s current account surplus would fall to 3.5 per cent of GDP (all other things being equal). If it falls to $75, the surplus would be wiped out altogether. Compare that to the country’s 11.2 per cent surplus in 2005.
While this fiscal position might seem pretty tame considering the massive deficits racked up by many developed countries, Shearing warns that Russia’s economy will underperform other large emerging markets over the coming years. “All of this underlines a point we’ve been making for a while,” he says. “Russia’s current growth model is unsustainable.”
