Recession-hit Russia hoping for growth by end-2016

Moscow: Russia’s economy is still flatlining after more than two years of crisis, figures have shown, with Moscow hoping to end 2016 on the mend but with longer-term prospects looking gloomy.

State statistics agency Rosstat said yesterday the economy contracted by 0.4 per cent year-on-year in the third quarter, confirming estimates by the economy ministry.

While little to cheer about in itself, the figure is less than the 1.2 and 0.6 per cent contraction seen in the first and second quarters respectively, suggesting the economy has been stabilising over the summer.

The longest crisis since President Vladimir Putin took power 16 years ago – sparked in late 2014 by falling oil prices and Western sanctions over Moscow’s actions in Ukraine – appears to be gradually relenting.

The recession has been accompanied by a surge in prices and has hit Russians’ spending power hard, especially for the poorest.

Economy Minister Alexei Ulyukayev last week predicted that fourth-quarter figures would be “visibly” more positive.

His ministry predicts a contraction of the economy of 0.6 per cent for 2016 as a whole – it plunged by 3.7 per cent in 2015 – and growth of around one per cent in 2017.

The central bank said yesterday that it saw barely-there growth of around 0.1 per cent in the third quarter – which would mark the end of the recession – but stressed this was within the statistical margin of error. It hopes for growth of 0.2 to 0.3 per cent in the fourth quarter.

More pessimistic experts at Capital Economics said the Rosstat figure “appears to be consistent, by our estimates, with a shallow fall in GDP in quarter-on-quarter terms”.

They predicted a “return to positive (albeit sluggish) growth by early next year.”

Entire sectors of the Russian economy – banking, oil and defence – are still under Western sanctions which complicate their financing.

A relaxation of sanctions still appears very uncertain despite leaders gaining power in the West seen to be more open to Moscow’s point of view, such as Donald Trump in the United States.

Putin and Trump, who spoke on the phone yesterday, have backed a “normalisation” of ties when the new US leader takes office, the Kremlin said.

Authorities in any case realise that without reforms to liberalise and diversify the economy, the country will not be able to hit growth rates high enough to cover large outgoings such as the cost of its military, currently deployed in Syria and facing a NATO build-up.

“We expect that in the next three years, the external conditions for our economy will remain, unfortunately, difficult. And the domestic conditions will not be easier either,” central bank chief Elvira Nabiullina told parliament yesterday.