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1Q14 GDP by production – growth confirmed at 0.9% YoY


Rosstat has approved real GDP growth in 1Q14 at 0.9% YoY and released its sectorial breakdown. Nominal GDP, at current prices, was RUB 15,992bn (USD 458bn) last quarter.

Meanwhile, sequential economy growth slid below the waterline with -0.3% SA QoQ, the deepest since the 2008-09 crisis.

At the beginning of this year, technical support from a range of sectors (blips across the following industries: agriculture, wholesales, motor maintenance, public services, and transportation and communication), which led to an optical recovery in 4Q14, has disappeared, shaving 1.4pp off the headline YoY reading.

As for the main economy drivers, while manufacturing, financial and real estate components remained in the list of key contributors (in total, they added 1.5pp to the annual GDP increase), an item called ‘wholesale and retail sales as well as auto maintenance and other services’ reverted from a driver to a drag (-0.2pp). That was mainly owing to its ex-retail sales part, as retail sales growth was almost unchanged (3.6% YoY on average during October 2013-March 2014).

Looking into 2Q-3Q14, the aforementioned major contributors are likely to drive into the woodwork. In particular, strength in manufacturing might already have disappeared in May, with oil refining growth normalising and a downturn in demand for construction-related goods, however the import substitution which is underway could smooth the downward pressure. Also, the upturn in mortgages was triggered by a weaker rouble and enhanced instability, and so could normalise sooner rather than later, leading to a normalisation in the financial and real estate industries. In addition, the financial industry benefited from a spike in demand on loans from corporates, which were trying to replace regular funding from the external markets (to remind, they were closed due to geopolitics).

Thus, we maintain our call for a technical recession in YoY terms (-0.1% in 2Q14 and -0.4% in 3Q14) and zero growth for the full year.

Vladimir Kolychev, Daria Isakova
VTB Capital analyst


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