SBERBANK COMMENT: Muddling through with modernization

By Evgeny Gavrilenkov, Chief Economist, Managing Director, Sberbank CIB.

Economic growth slows. GDP rose 2.9% y_o_y in 3Q12. Formally, GDP growth slowed from 4.5% over 1H12, but this was due mainly to a 5.6% drop in agricultural output in 3Q12, versus an increase of 29.7% in 3Q11. Although growth decelerated in other sectors, such as industry, retail, transport and construction, this was inevitable amid global turbulence. Overall, GDP climbed 3.9% in 9m12 (basic sector output expanded 3.2%). In October, basic sector output growth was at 0.8%, putting the 10m12 figure at 2.9%. Basic sector output seems to be lagging GDP growth, which is expected to be somewhat below 4.0% in 2012. This is a decent result given sluggish performance in the developed world and most developing countries.


Inflation moderates. The CPI rose 0.3% m_o_m in November; y_o_y inflation was at 6.5% at month end, while the YTD figure was at 6.0%. As w_o_w inflation remains at 0.1%, m_o_m CPI growth in December is unlikely to exceed 0.5%. If this is indeed the case, inflation may end up at 6.5% or even lower.


Modernizing economy. Despite the fact that industrial growth is slowing (in particular due to sluggish external demand), domestic manufacturing performed better and even saw some signs of a structural transformation. The relatively strong manufacturing performance, combined with expansion of the less energy_intensive service sector, resulted in a less energy_intensive economy overall – a clear sign of gradual economic diversification. Electricity intensity has been declining gradually, as rising energy tariffs are clearly contributing to energy_saving tendencies. Labor productivity continues growing amid falling unemployment.

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