World Economy

Russian Economy Shrinks

Russian Economy ShrinksRussian Economy Shrinks

Russia’s economy shrank the least since a contraction began at the start of last year, putting it on the cusp of exiting the longest recession in two decades.

Gross domestic product lost 0.6% in the second quarter from a year earlier after a decline of 1.2% in the previous three months, the Federal Statistics Service said on Thursday, citing preliminary data. That was better than all but four forecasts in a Bloomberg survey of 19 economists, whose median estimate was for a 0.8% drop.

The challenge for the world’s biggest energy exporter now is to gain traction as consumer demand continues to sag and oil remains in a bear market after closing below $40 a barrel last week for the first time in almost four months. Russia may now be approaching a turning point as capital-intensive businesses come to life after a record drop in investment that followed the collapse in crude prices.

The improving outlook is driving appetite for Russian assets. The ruble was the second-best performer in emerging markets last quarter with a gain of 4.8% against the dollar. It traded little changed at 64.82 against the dollar in Moscow. Ruble volatility is at the lowest level since 2014, with investors seeking close to four times the government debt tendered at an auction on Wednesday.

  Slow Growth

Unlike the recessions in 1998 and 2009, which set the stage for sharp rebounds, the economy has been slower to retool this time. With parliamentary elections a month away, authorities are under pressure to ease the plight of households after a currency crisis and a spike in inflation eviscerated their earning power. The government is already running the widest deficit since 2010.

As consumer demand, which powered Russia’s economic recovery in the years after the 2008-2009 crisis, continues to languish, agriculture, industry and transport carried Russia last quarter, according to the Economy Ministry, which also estimated that GDP lost 0.6%.

Central bank Governor Elvira Nabiullina in June put Russia’s potential growth at no more than 2% in the medium term and called for improving the business climate and structural reforms to harness the nation’s potential. GDP may expand 0.4% in the third quarter from the previous three months, according to the central bank’s research and forecasting department.

“Expectations for the beginning of a slow economic recovery in the third quarter have strengthened,” it said in a report on Monday. “The economy is expected to enter a trajectory of slow growth in nearest months if there’re no new external shocks.”