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Russia Economy in April 2014

Source: OPEC 4/17/2014, Location: Asia

Russia’s GDP growth in 4Q13 advanced by 2% y-o-y following 1.3% growth in the previous three months. The weaker rouble helped compensate for sluggish domestic demand with lower imports. According to the Russian Statistical Office, exports increased by 5.6% in 4Q13, whereas imports fell by 0.1%. Growth of household consumption decreased markedly in the 4Q13, when compared to 4Q12. Household consumption advanced by 4.1% y-o-y in 4Q13 compared to 7.3% in 4Q12. Government consumption expenditures rose by only 0.4% y-o-y in 4Q13 from 3.9% y-o-y in 4Q12. The rouble, along with the Russian stock market, showed better performance at the end of last month. It is nearly back to its pre-tensions rate, while the stock market eased losses last month to close around 5% lower than its commencement. This came on the back of diplomatic meetings that eased tensions over the situation in Ukraine. Russia’s stock funds received more than $200 million in inflows in the week ended 26 March. The manufacturing sector continued to experience a downturn in Russia last month. The HSBC manufacturing PMI had a fractional drop from 48.5 in February to 48.3 in March. This marks the fifth consecutive month below the 50 contraction level. The survey showed the strongest declines in output and new orders in approximately five years. The unemployment rate stood unchanged in February at 5.6%, slightly less than the same month of last year, while consumer price inflation rose to 6.9% in March, up from 6.2% a month earlier. The central bank announced that despite the need to support the economy, abovetarget inflation in combination with external risks are constraining its ability to cut interest rates. It recently announced that the key lending rate will be kept unchanged at 7% until June at the earliest. If capital outflows reach $150 billion in 2014, the Economy Ministry did not rule out the possibility of a less than 1% rate of growth in output. On the other hand, the government is discussing measures to stimulate domestic consumption amid calls to increase public spending. In conclusion, geopolitical uncertainty continued to push investment out of Russia with an estimated outflow of $70 billion in 1Q14, adding to the already downward momentum in foreign direct investment and consumer spending noticed even before the latest tensions. As such, the forecast for Russian GDP growth was reduced to 1.0% this month.

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