COMMENT: Government expects the start of economic recovery in 2H09

Vladimir Osakovsky,  Head of Strategy and Research at Unicredit Securities at Moscow.

Russian Minister of Economic Development Elvira Nabiullina said that the Russian economy is ready to recover and expects real GDP to grow by 3.9%-4.5% hoh in 2H09, Vedomosti reports. Nabiullina’s comments come after similar optimistic statements from First Deputy Prime Minister Igor Shuvalov and Finance Minister Alexei Kudrin.

Nabiullina pointed at the ongoing recovery of industrial output, which has grown in seasonally adjusted terms for three months in a row, as well as ministry estimates that suggest that real GDP grew in mom terms in June and July.

Our view: We believe the considerable improvement in 2H09 is likely due to the expected rise in government spending (including the anti-crisis stimulus), falling interest rates, which should stabilize investment, and the likely recovery of demand in key export markets, such as China and the EU. Moreover, the economy should start to show considerable improvement in yoy terms due to a rapidly fading high base effect.

Overall, we expect the Russian economy to recover from over a 10% yoy drop in 1H09 to just a 4% yoy decline by 4Q09, bringing the annual contraction of real GDP to some 7.4% in However, we note that the potential for a quick economic recovery in the more distant future is limited by the intensifying weakness of domestic consumer demand. The unemployment rate in Russia is presently close to a nine-year high in seasonally adjusted terms, as real wages and disposable incomes remain in a steep downward spiral. Therefore we expect Russian economic growth to remain at a subdued 0.8% yoy in 2010 as well.

Although we agree with optimistic statements by government officials, we expect little market reaction, as expectations of the recovery are likely to be priced in.

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