Russia’s economy grew by 2.5 per cent year-on-year in the second quarter, the government said on Friday, the fastest pace in almost five years as the recovery after a two-year-long recession is taking hold.
The preliminary estimate of the Federal Statistics Office, which comes without any details, exceeded market expectations. It is in line with the pace of growth the Ministry of Economic Development is forecasting for the full year. Russia’s central bank has a more conservative forecast of 1.5 per cent for 2017.
“We have revised our forecasts, which were already above consensus, up to 2.3 per cent this year and 2.5 per cent in 2018,” William Jackson, an economist at Capital Economics, said in a research note.
The strong reading highlights what is at stake as the US is targeting Russia with another round of sanctions under a law adopted earlier this month.
According to revised government figures, the Russian economy contracted by 2.8 per cent in 2015 and 0.2 per cent last year, a recession triggered by a sharp fall in oil prices and a first round of western sanctions in 2014.
Previously, the Federal Statistics Service had put the 2015 contraction at 3.7 per cent. The revision was made after the previously independent agency was put under the oversight of the economy ministry.
Maxim Oreshkin, economy minister, has repeatedly said this year’s economic growth would surprise on the upside. But many economists, including at the central bank, argue that Russia will struggle to grow faster than 2 to 2.5 per cent annually in the longer term unless it adopts structural reforms to reduce its over-reliance on resource exports and attracts more investment.
The stronger reading for the April to June period comes as the country gears up for presidential elections due in March next year, in which president Vladimir Putin is expected to run for re-election. Although opinion polls show that Mr Putin’s popular support remains high at around 80 per cent, sociologists say that the public’s interest has shifted from pride in Russia’s resurgence as a global power to economic woes.
Real household incomes have fallen by more than 15 per cent in the course of the recession and have yet to resume growth.
According to monthly economic activity data from the Federal Statistics Service, the recovery in the second quarter was broad-based, with industry as the main driver.
Industrial production increased by 3.8 per cent compared with the same period last year, up from 0.1 per cent in the first quarter. Construction was up by 2.9 per cent year on year, reversing a 4 per cent drop in the first quarter. Retail sales increased by 0.7 per cent over the second quarter of 2016, following an 1.6 per cent drop in the first three months of this year.