Azernews.Az

By Bloomberg

Russia’s economy had its first decline in almost six years after a plunge in oil prices and the ruble’s worst crisis since a 1998 default put the squeeze on the world’s biggest energy exporter.

Gross domestic product contracted 1.9 percent in the first quarter from a year earlier after a 0.4 percent gain in the previous three months, the Federal Statistics Service in Moscow said on Friday, citing preliminary data. That was better than all forecasts in a Bloomberg survey of 24 analysts, whose median estimate was for a 2.6 percent slump. The Economy Ministry had projected that output shrank 2.2 percent in the period.

The downturn marks what the government predicts will be a three-quarter slump after growth stalled last year amid the standoff with the U.S. and the European Union over Ukraine. Authorities have responded with a stimulus package and three decreases in interest rates this year as reeling consumption pinched sales at companies including PJSC MegaFon.

“The hardest hit was taken by service industries and luxury products, which do rely very much on the exchange rate and the cost of money,” Vladimir Miklashevsky, a strategist at Danske Bank A/S in Helsinki, said by e-mail before the data release. “Exporters have definitely benefited from a devalued ruble despite a decline in commodity prices worldwide.”

Brighter Outlook?

The government has grown more confident about the outlook after warning of a hard landing for the economy in January following a plunge in oil prices and mounting clashes in neighboring Ukraine. In a sign the central bank is drawing a line under the crisis, it sold rubles on Wednesday for the first time since June, moving to rebuild its reserves after spending almost $90 billion last year to defend the national currency.

The improving sentiment is playing out in the market, with the ruble staging the world’s best performance globally against the dollar after losing almost half of its value in 2014. The Russian currency, which has gained 21 percent against the greenback in 2015, traded 0.2 percent stronger at 50.0240 to the dollar as of 3:39 p.m. in Moscow.

The nation’s bonds have returned 45 percent this year in dollar terms, the most among 32 countries in the Bloomberg Emerging Market Local Sovereign Index. Russia’s dollar- denominated RTS Index has gained 34 percent in 2015.

The Bank of Russia has moved to ease policy after six rate increases in 2014, including an emergency move to 17 percent in December. That’s brought the benchmark rate to 12.5 percent, with the central bank signaling that easing will continue as inflation risks abate further. Consumer prices grew 16.4 percent from a year earlier in April after accelerating to 16.9 percent in March.

MegaFon, M.Video

While officials are raising expectations for a quick turnaround that may put the economy on track for growth in the fourth quarter, choking consumer demand is putting pressure on corporate revenues. Quarterly reports show the lowest average earnings per share for Russian companies since the beginning of 2009.

Russia’s second-largest wireless operator MegaFon reported a 1.2 percent decline in first-quarter revenue. The nation’s biggest electronic retailer M.Video said its sales dropped 6.3 percent in the first three months.

GDP may contract 2.8 percent this year before expanding 2.3 percent in 2016, Ulyukayev said April 23. The economy expanded 0.6 percent in 2014.

“We may see the deepest GDP fall of this year in the second quarter as previously tightened monetary policy is always biting with some lag, keeping fixed investment and private consumption deeply under zero,” Miklashevsky said.