Outlook on a weakening economy

With Russia releasing weaker than expected 2Q GDP figures, Business RT spoke with Vladimir Osakovksy, chief economist at Bank of America Merrill Lynch, Russia, about the outlook.

According to the data from Russia’s Federal State Statistic Service (Rosstat), Russian  GDP grew  an estimated  3.4% year on year in Q2 2011,  compared with 4.1% growth  in Q1. This  is  below  the  Russian  Economic  Development  Ministry's preliminary forecast of 3.7% growth for Q2. RT: What are the major factors in Russias slowin GDP?VO: “Russia’s GDP growth figures were really worse than expected , with consumption, investment and government spending -the key factors – going up during the period. I think, GDP grew at a lower pace mostly due to the decreasing production supply and imports speeding up.”RT: What is the outlook for GDP Growth? VO: “I expect GDP to grow faster in 3Q 2011, as both consumption and investment will continue to go up. Consumption will grow on the back of falling unemployment rate, that is currently close to its record low, and low cost of borrowings, with June rouble price for corporates to borrow standing at 8.7%, will be attractive for investors. Also, the dynamics will be good due to a low base effect, as last year the figures for that period were damaged by poor performance of Russia’s agricultural sector, which is much better this year.”RT: The slump in the rouble over the last week has mainly reflelected what?VO: “The oil price was going down last week and it was unclear where the bottom was. So, investors preferred to go out of rouble, a currency strongly tied to the oil price.”RT: How will the Central Bank respond?VO: “Basically, as the oil price is going down, the Central Bank of Russia isn’t interested in a strong rouble. So, I wouldn’t expect the CBR to interfere much to keep it high. Today, I think, the pace of economic growth is in the focus. And given falling inflation CBR might decide to cut refinancing rate this autumn.” RT: What is the outlook for the Rouble?VO: “I expect the rate of 29 roubles per dollar by the end of 2011, which now looks quite optimistic. As import is growing, Russia needs a weaker rouble to demonstrate a better balance of payments.”