Moscow Times
August 25, 2009
‘Recession Over but Crisis Remains’
By Anatoly Medetsky / The Moscow Times
The economy posted a second straight month of tenuous growth in July, prompting two of the government’s top anti-crisis officials to say Russia was edging out of a recession, although both were quick to warn that it was a fragile progress.
First Deputy Prime Minister Igor Shuvalov, who has led the government’s anti-crisis committee since December, made the announcement first. Andrei Klepach, the deputy economic development minister who first said the country was in a recession, officially presented last month’s growth figures later in the day.
But they both cautioned that it was too early to celebrate a stable economic recovery after the Economic Development Ministry reported that the economy grew 0.5 percent in July versus the previous month.
Such an improvement attributed to higher exports, investment and government support measures signaled an end to the recession, Klepach said, but the economy remains feeble.
“The recession is over … but the crisis has yet to be overcome,” he said.
Normally, it takes at least six months of continued economic growth to pronounce a recession a matter of the past, Klepach said, adding that he was sure the economy would keep growing through the rest of the year.
Shuvalov, accompanying President Dmitry Medvedev on a tour of Buryatia, also said the economy was growing. It has to grow for at least three months in a row for the government to conclude that the trend is stable, he told Reuters.
The government reported that the economy first rebounded in June, posting a marginal growth of 0.1 percent.
The figures for both June and July were adjusted for seasonal factors, Klepach said.
In year-on-year terms, gross domestic product contracted 9.3 percent in July, the smallest drop since February. The Economic Development Ministry expects an 8.5 percent fall in GDP this year.
Some economists cast skepticism on Klepach’s claim that the growth would continue throughout the rest of the year. Demand is still slowly falling, undermining any sustainable growth, said Yekaterina Lavrinenko, a macroeconomist at the Economic Experts Group, a think tank.
The economy has been lifted just by the need for companies across various industries to restock inventories because their production fell steeper than demand, Lavrinenko said.
“There will be improvements, but they’ll be the sort caused by temporary factors,” she said. “It doesn’t look like a full recovery has begun.”
Yet other economists described the government expectations as conservative.
“We are more optimistic than the Economic Development Ministry,” said Alexandra Yevtifyeva, an economist at VTB Capital who also said the recent growth was spurred by companies that were restocking their inventories. “We expect quite a strong economic recovery in the second half of the year.”
Industrial production, which has been posting month-on-month increases in the commodities export industries since May, expanded to the broader economy last month, Klepach said. Companies produced more food, textiles, shoes, machines and trucks, he said.
Klepach said companies produced more because they were able to cut costs and finally get hold of increased government contracts, a key part of the state’s anti-crisis program for the real economy.
Investment also grew by 0.3 percent in July, month on month, marking a turnaround since the economic slowdown began in the second half of last year, he said.
On the flip side, Klepach said retail trade slid a further 0.2 percent in July, compared with June, reflecting shrinking disposable incomes.
The industrial production rate may temporarily slip again in September, in part because of the deadly accident at the Sayano-Shushenskaya hydropower station last week, Klepach said.
Other electricity generators in the region have increased supplies to make up for the devastated station, but metals companies with facilities in the area including aluminum giant United Company RusAl have indicated that the accident could force them to curb production.
