Russia’s economy shrank by 1.9 percent in the first quarter under pressure from low oil prices and Western sanctions, the Russian Federal State Statistics Service said on Friday, a smaller contraction than had been feared.
Russian Prime Minister Dmitry Medvedev last month estimated that the economy had shrunk by 2 percent year-on-year in the first quarter, while Minister of Economic Development Alexei Ulyukaev projected that the contraction had reached 2.2 percent.
Many economists had released even more pessimistic forecasts.
Citing preliminary data, the statistics service said that Russia’s GDP contracted by 1.9 percent in the first quarter year-on-year after an expansion of 0.4 percent in the last three months of last year.
After surprise falls in the ruble last year, the currency has bounced back somewhat in recent months.
Russian President Vladimir Putin has said that the worst is over for the Russian economy and that the government expects the economy to return to growth next year.
Many economists have said the Russian government’s predictions appear too sanguine.
Andrei Yakovlev, director at the Institute for Industrial and Market Studies at the Moscow-based Higher School of Economics, said the economy was adapting to the burden of sanctions, but political uncertainty was high.
“This is an adaptation at a micro level, but unfortunately, this does not give any reasons to be optimistic about the future,” Yakovlev told reporters.
Russian consumers have been hit hard by the crisis, but a devalued ruble buttressed domestic industries, such as such as metallurgy and agriculture.
“The big question now is what to do with that money: Invest it in development, or convert and take it abroad?” Yakovlev said.
UK-based consultancy Capital Economics said that even though the financial market had stabilized, vulnerabilities remain.
“The growing confidence among policymakers that the economy will return to growth over the coming months looks overdone,” it said. “The best that can be said about Q1 GDP data from Russia is that the economy has avoided outright collapse and is, instead, merely on the cusp of recession.”
The consultancy estimated that the economy would contract by about 2.5 percent this year, revising down its earlier forecast of 5 percent.
“Although the seeds are slowly being sown for an eventual recovery, the year-over-year rate of Russian real GDP growth likely will remain in negative territory for most of the year,” Wells Fargo global economist Jay Bryson added.
The European Bank for Reconstruction and Development on Thursday predicted that Russian output would shrink by 4.5 percent this year and 1.8 percent next year.
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