Categories: Market Overview

Kremlin’s Growth Hopes Face New Headwinds as Economy Sputters

A tide of weak reports are casting doubt on the Russian government’s optimistic economic forecasts for the second half. “There are a lot of worrisome signals from the second quarter,” said Natalia Orlova, chief economist at Alfa Bank in Moscow. “My forecast for the year is for 0.8% growth, but if there are no improvements in the second half, even this may be unattainable.”

Data due as soon as Wednesday are expected to show a slowdown in monthly retail sales in June. Other numbers already published show car sales, a gauge of consumer demand, continued to fall last month, and business activity contracted for the first time since 2016. Exports contracted 14% in May from a year ago, coming in below estimates.

Under pressure to deliver on growth following five years of falling incomes, government officials have been insisting that the economy will perk up in the second half as spending kicks in on a $400 billion infrastructure program. But economists say that optimism may have been premature as the global slowdown adds to Russia’s domestic woes. The economy expanded 0.8% in the second quarter from a year ago after a 0.5% increase in the first quarter, according to the median of forecasts in a Bloomberg survey. President Vladimir Putin promised when he was re-elected last year to deliver growth of more than 3% by the middle of the next decade.

Rising concern about growth has caused some tension between Russian policy makers in recent weeks, with the Economy Ministry blaming the central bank for not doing enough to promote growth. The Finance Ministry has suggested spending some of the money stockpiled in a wealth fund to fuel growth.

Kremlin’s Growth Hopes Face New Headwinds as Economy Sputters, Bloomberg, Jul 17
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