Amid disastrous drops in industrial production, Russian business leaders and officials are split over whether there are green shoots of recovery around the corner.
President Dmitry Medvedev on Monday warned that GDP would contract more than predicted this year and the Economic Development Ministry is expected to revise its original forecast of minus 2.2 per cent downwards.
In 2009, unfortunately, we expect a sharper fall in the GDP than we had thought," Medvedev said at a meeting with top ministers, The Associated Press reported. "The global economic crisis is far from nearing the end."
While Medvedev did not give an exact figure, Economy Minister Elvira Nabiullina stated that it could be as much as 8 per cent. This has been the most pessimistic prediction to date, surpassing the IMF, which forecast a 6 per cent decline this year, followed by 0.5 per cent growth in 2010.
In the first quarter GDP fell 9.5 per cent year on year, while industrial output shrank 16.9 per cent year on year in April and 8.1 per cent compared to March, the State Statistics Agency said.
"We are right at the bottom now," said Roland Nash, chief strategist at Renaissance Capital. "What I mean by that is that the shock of decreased wages and increased unemployment and the lack of financing are all hitting right now."
Unemployment reached an eight year high last month of 7.7 million people, or 10.2 per cent, and the rise shows no signs of stopping.
"It is going to be very patchy, depending on regions and companies but I expect that unemployment as a lagging indicator will continue to go up," said Martin Gilman, a professor at Moscow's Higher School of Economics and a former IMF representative in Russia.
Retail sales fell 5.3 per cent in April on the year, while inflation, which was high even during the boom years, remains one of the biggest challenges, hitting 13.3 per cent in 2008 and 5.3 per cent in the first quarter of 2009.
The crisis has also exposed Russia's dependence on raw materials, particularly oil, which has fallen from record highs of $147 a barrel last July to around $30 in January. Urals blend, Russia's main export, has now risen above $58 and is helping prop up the economy.
"Russia will today earn about $550 million from oil and gas exports compared to about $400 million when oil traded at $40 per barrel, certainly helps improve the outlook and reduces the budgetary headache," Chris Weafer, chief strategist at UralSib, wrote in a note to investors.
However, the IEA predicts world oil demand will fall by 2.56 million barrels a day in 2009 and with OPEC quota compliance slipping, a fall in the crude prices could put the Russian economy under more pressure.
One sign that the economy is recovering are the stock markets, which have been two of the strongest in the world as investors have been attracted to emerging markets. The RTS has increased more than 60 per cent and the MICEX is up some two-thirds since January 11.
"Just as financial markets led the economy into the crisis so I think the financial markets will be leading the economy out of the crisis and the financial markets are obviously doing a lot better right now," said Nash.
Medvedev's admission that Russia will have to cut spending for the 2010 budget has been seen as a victory for the Cabinet's fiscal conservatives but the debate still rages over how to reform the economy.
Finance Minister Alexei Kudrin has repeatedly advocated slashing the budget, which is expected to have a 7 per cent deficit this year, though has warned that Russia will still need to borrow more than $7 billion abroad next year.
"We will have to cut spending - including the key areas," Kudrin said, AP reported Monday.
Kudrin also announced Monday that the budget will be based on the "conservative" estimate of $50 a barrel oil in 2010 and $52 in 2011.
Medvedev called for greater macroeconomic stability but also continued spending of reserves "to meet our social obligations and still spend large amounts on anti-crisis measures," which some analysts see as a problematic.
"We note something of a contradiction in [Medvedev's] address insofar as it dealt with the fulfillment of previous state obligations versus limiting Russia's budget deficit to maintain macroeconomic stabilisation," Elena Sharipova, a senior economist at Renaissance Capital, wrote in a research note on Tuesday.
Negative numbers
Economy in free fall:
Unemployment: 10.2 per cent (7.7 million people)
GDP growth 2009: - 6 per cent (IMF prediction)
Inflation 2009: 13 per cent (Reuters quoting Kudrin)
Industrial production (April 2009 y-o-y): - 16.9 per cent
Urals blend oil price (average Jan-April): $44.79
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