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Russuan economy shrinks rapidly

11 August 2009 12:34 (UTC +04:00)

Bakuâ€“ APA-Economics. Russiaâ€™s economy contracted the most on record last quarter as rising unemployment sapped consumer demand, bank lending stalled and the government failed to approve a stimulus package until just two months ago, Bloomberg reported.

Gross domestic product contracted an annual 10.9 percent in the second quarter, the Federal Statistics Service said in an e- mailed statement today, citing preliminary data. The median estimate in a Bloomberg survey of seven economists was for output to shrink 10.2 percent. The serviceâ€™s data go as far back as 1995.

Russiaâ€™s economic decline is worsening after output contracted 9.8 percent in the first quarter, ending 10 years of expansion that averaged close to 7 percent. The worst global financial crisis since the Great Depression undermined demand for Russiaâ€™s oil, natural gas and metals. Industrial production plunged as companies depleted stocks and struggled to raise funds during the credit crunch.

The ruble erased earlier gains against the dollar, weakening 0.4 percent to 31.9356, the lowest in almost a month, as of 1:02 p.m. in Moscow after todayâ€™s report. The currency lost 0.6 percent against the euro to 45.3623. Those movements left the ruble at 37.9618 against the central bankâ€™s target currency basket.

Russiaâ€™s economy will need between four years and five years to match last yearâ€™s pace of growth, Finance Minister Alexei Kudrinsaid yesterday. GDP in 2008 grew at the slowest pace since 2002, expanding 5.6 percent compared with 8.1 percent a year earlier.

The IMF forecasts a 6.5 percent economic contraction for Russia this year, followed by growth of 1.5 percent in 2010.

The central bankâ€™s five interest-rate cuts since April 24 have failed to spur lending as banks hold back on concern borrowers canâ€™t repay loans. Lending to consumers dropped 1.1 percent in June for the fifth consecutive monthly decline and banks shrank their corporate loan books by 1.2 percent, according to central bank data.

By the end of 2009, 17.4 percent of the population, or 24.6 million people, will be living beneath the subsistence level of $185 per month, almost 5 percent more than before the crisis, the World Bank said in a report released in June.