Russian Economy Slowed Down by Stagnant Industrial Production

on November 20 2013 2:34 PM
Russia St
Red Square in Moscow, with St. Basil's Cathedral on the left and the Kremlin, right. Reuters

Russian agricultural production rose in October and retail sales were up 3.5 percent. But Russia’s economy will still be slow in the fourth quarter thanks to increasingly stagnant industrial production.  

Despite the weakness, government warnings about credit growth and debt suggest that interest rates won’t be going down any time soon, according to a report from Capital Economics. The report predicts Russian fourth-quarter growth  will pick up, but “it’s nothing to get excited about.”

Recent data shows that the Russian summer grain harvest is 25 percent larger than last year. Agricultural production was up 26.3 percent year over year, after nine months of growth averaging at about two percent.  “It seems that this year’s good harvest is finally starting to translate into stronger agricultural production,” the report said.

Plus, consumer spending is getting stronger – retail sales growth increased from 3 percent in September to 3.5 percent in October.

What the Russian economy really needs is increased investment in productive capacity but this contracted by 1.9 percent year over year in October, after falling at an average rate of0.8 percent for the past ten months.

Despite the slowdown, Russia won’t be cutting interest rates in the near future. Russia’s central bank governor Elvira Nabiullina warned against loose policies when announcing problems with high credit growth and household debt.  “The entire economy should become friendly toward projects with a lengthy return on investment,” she said in a statement this morning, according to Bloomberg. 

 

  

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