Page 32 - RusRPTMar19

Rosstat’s first GDP growth estimate for all of 2018, released on February 4, surprised both Russian and foreign analysts. Rosstat estimates Russian GDP last year grew by 2.3%. Preliminary figures for the first nine months of 2018 indicated GDP growth of 1.6%, and available monthly data indicated no significant pick-up in growth.
One factor in the higher-than-expected growth figure was a significant revision of the construction activity data. It appears that a large share of construction work at the massive LNG facility on the Yamal peninsula was only booked in the end of 2018.
Despite the positive surprise, the acceleration in growth has not been broad- based. Growth in private consumption last year slowed to 2.2% (3.2% in 2017) and growth in public consumption remained at just 0.9% (2.5%). Preliminary figures indicate that fixed investment rose last year by only 2.3% (5.5%). The positive surprise in GDP growth in 2018 was largely due to increase in net exports. The growth in the volume of exports rose last year to 6.8% (5.0% in 2017), while growth in the volume of imports slowed to 3.8% (17.4%). First estimates of GDP are, however, still subject to several rounds of revisions.
Minister of Economy Maxim Oreshkin admitted that the 2.3% GDP growth result for 2018 – a six year high -- reported by Rosstat in January was “not sustainable” and “due to one-off factors,” on February 11.
The result raised eyebrows after Rosstat, which is now under the direct control of the Ministry of Economy, revised the construction output up in 2018 and boosted the overall growth figure dramatically. As bne IntelliNews was one of the first to report, when economists checked the construction result against physical proxies like cement production there was little evidence to support the increase and the government has come in for a lot of flak for its “Soviet style” padding the numbers to keep the elites happy.
The Ministry of Economic Development acknowledged in its monthly “Picture of the Economy” bulletin that Russia’s 2.3% GDP growth in 2018 does not represent sustainable growth and reiterated its 1.3% growth estimate for this year. The Central Bank of Russia (CBR) has similarly remained bearish on Russian growth, while none of the International Financial Institutions (IFIs) have changed their forecasts.
“Oreshkin cited several one-off factors such as an increase in oil production and a dangerous boom in consumer borrowing as unsustainable sources of 2018 growth. He acknowledges that growth was “not where it can be felt by the population,” and one should not draw “global positive conclusions” from the data. The economy minister, of course, has tried to refocus the discussion on structural reforms that will guarantee Russian growth in the near future. By implementing a massive $390bn investment drive via national projects in infrastructure, demography, health, education, and exports, Russia will attain its economic breakthrough (i.e. growth above the global average) in due time. Nevertheless, to the extent that the high 2018 GDP figures were politically motivated, the need for officials to now backtrack on the positive messaging and reaffirm reality has made the endeavour a real flop,” BMB said in a note.
The ministry believes GDP growth will not accelerate above 2% until 2021,
32 RUSSIA Country Report March 2019 www.intellinews.com