Russia’s EconMin did not revise its 2.4% GDP growth forecast for 2013. Recently appointed ex-central banker EconMin Alexei Ulyukaev commented that in H2/13 economic growth is going to pick up as expected due to a favourable base effect, good agriculture performance, and weaker RUB.

The EconMin did not revise the forecast despite flash estimates of RosStat published last week that showed Q2/13 GDP growth at 1.2% y/y vs. 1.9% y/y expected by EconMin and 2% by the analysts. Ulyukaev commented that risk of recession is still there and that economic policies will have to react accordingly. The 2.4% forecast was already cut once this year from initial 3.6%.

EconMin also commented on last week’s decision of the Central Bank of Russia to keep the refinancing rate unchanged despite easing inflation and slowing economy. Ulyukaev stressed that lowering the rates is a sensitive issue and that the CBR has to keep in mind the ambitious goal to cut the inflation to 4%-5% in 2014. Previously Ulyukaev was speaking in favour of monetary easing through diversifying liquidity instruments, rather than through cutting the rates.  

Russia’s GDP in Q2/13 increased by 1.2% y/y, according to the flash estimate of RosStat. The growth slowed down from 1.6% y/y seen in Q1/13, continuing the accelerating negative trend that started in the end of 2012. Q2 GDP results are the weakest since 2009 and by a large margin below the expectations.

Apart from being below the expectations GDP growth rate decline from 1.6% y/y seen in Q1/13 shows high levels of uncertainty in current Russian economy. The authorities and analysts expected Q2 growth to accelerate on stronger domestic demand and final consumption, but the flash estimate suggests that it weakened as well. At the same time external demand remains week and investment stagnating.

Russia’s growth forecasts for 2013 from international institutions and rating agencies ranges from 1.8%-2.4%. Capacity constraints, unaddressed structural obstacles, slowing domestic and external demand, stagnating investment, are among the factors contributing to the slowdown.