MOSCOW — Russia’s economy shrank by a startling 9.5 per cent in the first three months of the year under the weight of the global economic crisis, forcing the government to radically revise its yearly forecast, a senior official said Thursday.
Russia has experienced a stunning reversal to its eight-year economic and consumer boom, when growth averaged about seven per cent on the back of soaring oil prices. The economy started to nosedive last fall after the price of oil, its key export, collapsed, investors pulled billions of dollars out of the country and industrial output slowed.
In comments confirmed by the Economy Ministry, Deputy Economy Minister Andrei Klepach on Thursday also described as “quite realistic” the forecasts made by the International Monetary Fund, which says Russia’s gross domestic product could shrink by six per cent in 2009.
Klepach warned Russia could see an even steeper GDP decline of up to 10 per cent in the second quarter.
“It’s much bigger than what we expected,” said Clemens Grafe, an economist at UBS, referring to the quarterly drop. “This is clearly a shocking number — no question.”
He suggested that some of the drop could be attributed to Gazprom, Russia’s state-owned gas giant and the country’s largest company, after gas exports plunged in the first quarter on the back of a huge downturn in demand and expectations that gas prices will continue to fall. They lag oil prices by six to nine months.
The gloomy predictions coincided with a much hoped-for move by the Central Bank to cut the refinancing rate from 13 per cent to 12.5 per cent, providing some relief for borrowers. Companies unable to access credit in frozen overseas markets have grumbled that local banks are offering loans at exorbitant rates.
In contrast to many European countries, Russia had raised interest rates to combat soaring inflation at the expense of higher borrowing costs. But recent data suggests the threat is beginning to recede.
“Russia is now over the peak on the inflation side, and policy can now start actually becoming supportive of the economy,” Grafe said, adding that he was skeptical of Klepach’s dismal predictions for the second quarter. “But it will take some time.”
Officials had forecast that GDP would decline by 2.2 per cent this year, a figure economists said was optimistic. The government will now revise that outlook, he said.