Russia's quarterly growth slows sharply due to drought

12th November 2010, Comments 0 comments

Russia met analysts' expectation on Friday as it reported a 2.7 percent annual third-quarter growth rate despite a record drought earlier this year and a poor trade balance.

The Federal State Statistics Service said in a preliminary report that growth had slowed from the 5.2-percent recorded on an annual basis in the second quarter of 2010. Russia has penciled in a 4.0-percent figure for the year.

"We expected growth to come in at less than three percent," said Uralsib Bank's chief strategist Christopher Weafer.

"This was slightly lower but not too far off. Economists had already reduced their expectations for the third quarter because of the effects of the drought," Weafer said.

He and other analysts predicted a pickup in investment activity through the end of the year that should lead to stronger consumption in 2011 and a general rebound in economic performance.

Russia's economy usually performs closely in line with fluctuations in the global energy markets. Europe depends on Russia for one quarter of its natural gas imports and the country last year was also the world's second-largest exporter of oil.

But a 2009 nosedive in global energy prices saw Russia's economic performance drop by 7.9 percent last year, a performance that was on a par with the worst years of its post-Soviet transition.

Its recovery from this collapse was hampered by continued tremors on global financial markets and an unprecedented drought that stretched not only over Russia but also continental Europe.

The Russian Agriculture Minister said in July that the heatwave had destroyed some 10 million hectares of land, equivalent to around 20 percent of all of Russia's arable land.

The World Bank has already cut Russia's 2010 performance figure on two occasions. Its November downgrade to 4.2 percent cited volatile capital flows and oil price uncertainties.

The World Bank predicted a 4.5-percent growth figure for 2011 that would then slow to 3.5 percent the following year.

A partial recovery in oil prices has helped Russia avert avert the most serious problems plaguing some of its European Union counterparts.

But economists warn that Russia's trade balance will struggle to support strong growth rates for the rest of the year as imports accelerate and local production stalls.

The tepid growth has forced Russia to scramble as it seeks to find savings in this year's budget. The finance minister on Friday reported a federal deficit of 2.1 percent of GDP for the first ten months of the year.

Some of the shortfalls was attributed to disappointing revenues from Russia's energy exports. These accounted for less than half of all the budget revenues in October, a low figure that usually comes in at least 50 percent.

But economists also saw a likely recovery in bank lending through the end of the year. Denmark's Danske Bank said that this should lead to greater household consumption in first half of 2011 and stronger investment activity in the second half of the year.

"All in all, we see (the second half of 2010) as being the biggest struggle for the Russian economy in recovering the the severe drop in GDP in 2009," Danske Bank bank concluded.

© 2010 AFP

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