Russia's 2009 GDP Data Paint Grim Picture

RosStat has published a first estimate of developments in Russian GDP in 2009 both by sector of origin and by end use. The figures confirmed a truly dreadful year for the Russian economy thanks to a plunge in world-market oil prices that began late in the third quarter of 2008 and to the turmoil in global financial markets that followed the collapse of the Lehman Brothers investment bank. Overall GDP declined by 7.9% in 2009 compared with 5.6% growth achieved in 2008. It should be noted that the annual data and quarterly data for Russian GDP are now inconsistent and will not be reconciled for another month or so.

On the sector of origin side, the biggest hits were taken by construction, hotels and restaurants, and manufacturing with gross value-added by these sectors down 16.4%, 15.4% and 13.9%, respectively. These sectors face contracting demand as credit to the domestic private sector dried up and households restrained purchases due to concerns about future income streams. Industry as a whole saw a drop in output of 10.4% as the natural resource extraction and the electricity, gas and water branches experienced far more moderate downturns. Gross value-added in industry had been nearly stagnant in 2008 thanks to the global economic slowdown and credit crunch that unfolded in the last four months of the year. Prior to 2008, industrial gross value-added had been growing in excess of 4% per annum. In the case of the construction sector, annual growth in value-added had ranged in the double digits through 2008. The only sectors where value-added increased in real terms in 2009 were state administration and health and social services, by 3.2% and 0.6% respectively, as the government put a stimulus package in place and sustained the social safety net.

On the end-use side, by far the sharpest decline took place in gross capital formation at -37.6%. As gross fixed capital formation dropped a more moderate 18.2% it is clear that inventories were a substantial drag on GDP in 2009. Household consumption also suffered as real incomes stagnated and unemployment and under-employment threatened future income streams. Lack of affordable credit was a damper on both capital and consumer spending. Banks feared a snowballing of loan defaults and hesitated to make loans, choosing instead to build their reserves to shore up their ability to withstand it. The only components on the end-use side that saw increases in 2009 were government consumption, up a moderate 1.9%, and after years of shrinking, net exports of goods and services. Net exports of goods and services rose by a hefty 58.0% in 2009 as real imports on a national income accounting basis plummeted 30.9% compared to a decline of only 4.8% in exports. The decline of imports reflected not only the contraction of economic activity in Russia, but also the weakening of the rouble in the first half of the year. The rouble regained a good share of ground in the later months as world-market oil prices rebounded.

Outlook and Implications