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1Q14 GDP by expenditures – net exports replacing internal demand as main growth driver


Rosstat has published the expenditure breakdown of GDP for 1Q14, confirming growth at 0.9% YoY.

Household consumption kept losing pace (3.7% vs. 4.7% YoY in 2013). The decline in fixed capital formation advanced to 7.0% YoY (from -0.1% in 2013), and inventory investment also visibly deteriorated. Exports slowed significantly to 1.6% YoY, normalising after a 4Q13 spike in gas exports, while the decline in imports accelerated to 4.5% YoY (vs. 0.1% YoY in 4Q13).

The latest GDP report highlights the ongoing reshuffle among economic drivers: while local demand is sticking to a firm downward trend, net exports are benefitting from the contraction in the import of goods and services. Domestic demand suffered mostly on shrinking investments (both FAI and destocking by businesses shaved around 2.3pp from the annual headline increase), while private consumption retained the near 4% growth pace in annual terms (added 2.0pp) and even quickened in terms of sequential growth (probably due to the FX-driven rush for advance purchases). As a side note, the contribution of statistical discrepancies is tangible (0.3pp), and without this, GDP would have softened gain.

For 2Q14, monthly statistics (particularly, the smaller-than-expected drop in investments and the surge in gas exports amid geopolitical tensions) imply upside risks for our forecast of a 0.1% YoY decline. However, worrisome signs of growth losing momentum are likely to persist on the agenda later in the year amid slowing wage growth in the private and (especially) public sectors, normalising export growth closer to a standstill, substantially tarrying retail lending and limited opportunities for the private investments. The only positive for the short term will likely be import substitution thanks to trade impediments and degraded demand on imported goods. On balance, we expect FY14 GDP YoY growth of 0%, which implies a quarters of lingering pause to come.

Vladimir Kolychev, Daria Isakova
VTB Capital analyst

GDP, Russia

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