Emerging indicators suggest Russia may slip into recession

  • Article by: BLOOMBERG NEWS
  • Updated: April 5, 2014 - 5:07 PM
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People rallied in support of Ukraine’s territorial integrity in Kiev’s Independence Square in Ukraine last month.

Photo: Sergei Chuzavkov • Associated Press file,

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Russia’s economy is on the brink of a recession this quarter after gauges of manufacturing and services showed that seasonally adjusted output probably shrank between January and March for the first time since 2010.

The composite purchasing managers’ index dropped to 47.8 last month from 50.2 in February, HSBC Holdings Plc recently reported. A reading below 50 indicates contraction. Business expectations in the services industry were close to a record low seen at the end of 2008.

“Unless geopolitical risks subside, the Russian economy will likely enter a technical recession in the second quarter,” Alexander Morozov, a Moscow-based economist at HSBC, said in the report. “The Russian economy is still going in the wrong direction, in contrast to the global economy which continues to improve.”

The fallout from the crisis in Ukraine is moving to the forefront of policy debates in Russia as sanctions leveled against some individuals and companies stoke capital flight, extinguishing a rebound in the economy. While growth unexpectedly accelerated in the fourth quarter before tensions with Ukraine intensified, gross domestic output expanded at a 1.3 percent pace in 2013, the slowest since a 2009 recession.

The ruble is down 7.5 percent against the dollar this year.

Policymakers are limited in their ability to respond to a faltering economic outlook. The central bank will probably remain “hawkish in order to stabilize the currency and financial markets,” HSBC said.

“Our economy isn’t in crisis, but it’s in stagnation,” Deputy Economy Minister Andrey Klepach said recently. “If earlier we expected this stagnation to end in the first quarter or by the middle of the year, now there are risks that it may run over.”

GDP will expand 1.2 percent in 2014, according to the median estimate of 37 economists. “The Russian economy is indeed in for a rocky period ahead — with no real evidence in my mind of an easing in tensions with the U.S.,” said Timothy Ash, an economist for Standard Bank Group Ltd. “This would suggest in my mind that Russia could in fact post a negative real GDP print this year.”

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