Component-wise, household consumption remained the key growth driver with a 4.7% gain last year, albeit slowing visibly from 7.9% in 2012. Overall, the details confirm that softer domestic demand across both public and private sectors was the main reason behind the economic slowdown last year, shaving 3.7pp from the headline GDP number (vs. 2012). At the same time, drag from net exports and inventory destocking has moderated, contributing +1.6pp to GDP growth acceleration.
Looking ahead we can hardly expect any convincing growth rebound in the coming quarters as the economy continues to adjust to tighter budget constraints (fiscal rule, tariff policy), while structural measures to improve the business climate are slow to bear fruit. Further slowdown in consumer spending on the back of a souring labour market and moderating wages growth, particularly in the public sector, presents a major headwind to the growth outlook this year, we believe. The contribution from net exports might turn slightly positive this year on the back of moderating imports and stable exports, but this alone is unlikely to boost growth considerably. We do not expect the restocking cycle to kick in before the latter part of the year given the backdrop of softening domestic demand and uncertain growth outlook for Russia’s main trading partners – EU and China.
Overall, we think the balance of risks to our below-consensus growth forecast for 2014 (1.25%) are tilted to the downside, especially in light of rising tensions across EM FX and short-term risks related to the clean-up of the local banking system.