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Russian GDP Accelerates as Domestic Production Grows by Fastest Rate in Two Years

Russian economy shows continued resilience. Sanctions appear not to be working.
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Russian GDP for the month of September grew at a rate of 1.1% year on year, pushing the year-to-date rate of expansion up from 0.7% in August to 0.8% - above the central bank's 0.5% target for the year and western economist's mean 0.2%. Growth in the third quarter reached 0.7% year on year according to Economic Development Minister Vedev. 

The World Bank had said in March that if the crisis escalated after Crimea (which it did) Russia would contract by 1.8% in 2014, meanwhile in July the IMF cut Russia's growth forecast to 0.2% for 2014 and the ERBD as recent as September forecasted Russia would not grow at all in 2014. Clearly, these predictions will be fairly wrong assuming Russia avoides a disaster in the fourth quarter. 

<figcaption>Food sanctions are proving very tasty for the Russian economy </figcaption>
Food sanctions are proving very tasty for the Russian economy

In September, domestic manufacturing was boosted by a weaker ruble, the start of the Chinese gas pipeline construction and Russia's food import sanctions on the West as it grew by its fastest rate in two years; 2.8%.

Agriculture registered a stunning 17% gain in September as better temperatures, increased productivity and increased use of land drove a major boost to grain production. 

Elsewhere, retail sales (1.7%) and services (1.9%) improved as consumers continued to spend despite low confidence because of an extremely healthy household balance sheet.

The drag on GDP was investment which contracted by 2.8% in September, pulling the year to date rate down to minus 2.5%. Investment has been hit by deteriorating confidence in businesses, poor conditions in certain sectors such as mining and real-estate, sanctions, higher interest rates and general tighter lending standards after new central bank rules were imposed.

Meanwhile, separate data indicated that the federal government ran a surplus of 1,110 billion rubles, or 26 billion dollars, in the first 9 months of 2014 up 25% year-on-year. No data has been released for the trade balance for September but in August Russia ran a 16bn dollar surplus which was up 12% on the year. 

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