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Russia’s Unpredictable Past Complicating Economy’s Future

Industrial output in Q1 was upgraded to 2.8% from 1.9%.Industrial output in Q1 was upgraded to 2.8% from 1.9%.

Russia is a country with an unpredictable past, according to a local saying, and a recent change in some of its economic data rather proves it.

A revision by the statistics service this month instantly turned factory output from the laggard of Russia’s recovery into one of its few bright spots. The data review more than doubled last year’s gain in industrial production from its previous estimate, suggesting to Alfa-Bank “a completely new reality of the Russian growth story,” Bloomberg reported.

Far from decelerating, it turns out, a quarter of the economy was actually on the ascendant, thanks to a shift by the Federal Statistics Service to a new classification and additional data supplied by companies. While that implies a better momentum going into this year, it’s heaping uncertainty for investors and analysts trying to take the pulse of an economy already rattled by US sanctions, changes in the tax system and the dimming outlook for oil prices.

“It seems the aim of the entire revision was to improve the figures ever so slightly,” said Oleg Popov, a money manager who oversees $300 million of assets at April Capital in Moscow. But “the changes are quite substantial, and in the West they would have caused a shock.”

Revisions going back as far as 2016 have already prompted the economy ministry to raise its assessment of growth in gross domestic product by 0.3 percentage point for 2017 and by 0.2 percentage point for last quarter. Next week, the statistics service is due to issue its final estimate of the first-quarter GDP performance, which it just reaffirmed at 1.3% from a year earlier.

For April Capital’s Popov, the shift in control over the agency back to the economy ministry gives pause. It took over the statistics service, which previously reported directly to the cabinet, after criticizing the quality of data being produced. That created the impression of a conflict of interest because the ministry is also responsible for official forecasts, which were proving to be too optimistic—until the data revision.

Meanwhile, the weak performance has been a political problem for President Vladimir Putin, who’s pledged after his reelection in March to accelerate sluggish growth to a level that exceeds the global average in order to lift Russia into the world’s top five economies and deliver a “decisive breakthrough” in living standards.

After the changes, which largely affected manufacturing, last year’s expansion in industrial output was upgraded to 2.1% from 1% and the gain in the first quarter now stands at 2.8%, up from 1.9%.

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