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GDP – growth surprised on the upside in 3Q14


GDP growth slowed slightly in 3Q14 to 0.7% YoY from 0.8% in 2Q14, according to Rosstat, implying a moderate 0.4% sequential rebound (SA QoQ).

Monthly indicators suggest there were several opposing forces at play:

record-high harvest this year, pushing agriculture output up 11% YoY in 3Q, which might have added near 0.6pp to GDP growth.

Execution of defence orders as seen in a surge of undisclosed output across transportation machinery manufacturing industries.

Construction of the Power of Siberia pipeline, as seen in the sustained double-digit rise in pipes output

Import substitution on a weaker rouble, as well as tighter trade restrictions;

Aggressive destocking after a protracted period of inventory accumulation, particularly in consumer-related industries — and the car sector specifically.

Massive decline in gas exports (26% in 3Q) on lengthy price negotiations with Ukraine and soft demand from Europe.

Overall, it looks as though the Russian economy continued to muddle through at a meagre pace of growth, propped by state sector and net exports.

The outlook for 4Q14-2015, however, looks grim: i) consumer spending will probably dip under water; ii) uncertainty and tightening financial conditions are set to weigh on investments. Fiscal stimulus, infrastructure spending and import substitution are likely to remain the bright spots, but they cannot keep the economy from sliding into recession in the coming quarters in our view.

Vladimir Kolychev
VTB Capital analyst

GDP, Russia

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