Russia's economy will contract by 2.2% in 2009, according to government figures. The report comes after President Dmitry Medvedev (pictured) announced a $1.3 billion aid package to generate jobs in small and medium-sized businesses.
The Russian economy will contract by 2.2 percent this year, a minister warned Tuesday, the first time GDP is to shrink in the world's largest country since the 1998 financial crisis.
"The forecast has worsened to a 2.2-percent contraction in GDP (gross domestic product)," Deputy Economic Development Minister Andrei Klepach was quoted as saying by Russian agencies.
His comments marked a sharp downgrading of earlier estimates of negative 0.2-percent growth and the first official admission that Russia faced a recession in 2009.
Klepach, who has become the government's pointman for gloomy economic predictions, also warned that industrial production would fall by 7.4 percent while investment would be down 14 percent.
Adding to the bad news, he said industrial production could end up being even worse than currently predicted by the ministry.
"This will depend on how the government's anti-crisis measures will work and also how the situation with bank credits for the economy develops," he added.
The cut in the GDP forecast came a day after the statistics office said that industrial production plunged by 16.0 percent in January compared with activity in January 2008, recording its worst fall for 15 years.
Compared with December, industrial production fell by 19.9 percent.
Analysts warned that such figures meant the GDP contraction in 2009 could be even worse than forecast by the ministry.
"We believe the dramatic January industrial figures make our forecast of a 3 percent decline in GDP for the full year look quite optimistic," commented Alfa Bank senior analyst Natalya Orlova.
"The fact of worse to come is a certainty rather than just likely," said UralSib chief strategist Chris Weafer.
"The industrial production report for January confirms that economic activity is still slowing very rapidly and that we may not see the worst of it until Russia’s spring weather arrives in late April," he said.
The effects of the economic crisis have been particularly severe for Russia because of the fall in prices of its main exports crude oil and natural gas.
GDP growth was 5.6 percent in 2008, already well down on previous years when the economy grew by 8.1 percent in 2007 and 7.4 percent in 2006 on soaring commodity prices.
Russian leaders have vowed that while the current situation is tough there will be no repeat of the events of 1998 when a debt default brought the economy to near meltdown.
According to the International Monetary Fund (IMF), GDP contracted by 5.3 percent in 1998. Russia thereafter enjoyed a decade of steady growth.
President Dmitry Medvedev on Tuesday called on all government departments to cut spending in the face of an economic situation which he said was "not simple".
"We need to begin with ourselves. The presidential administration is not the biggest department but it can also show its example," he said, according to Russian news agencies.
In a sign of mounting political concern over the crisis in Russia's regions, Medvedev on Monday used his powers to sack three regional governors before their terms were finished.
Medvedev said Sunday that Moscow will inject 44 billion rubles (986 million euros, 1.3 billion dollars ) into creating new jobs as Russians reeled from a dramatic hike in unemployment.
The aid package would be aimed at creating jobs in small- and medium-sized businesses, as well as in construction projects, Medvedev said in an interview with the Rossia television channel.
"It could be for roads, or it could be for other infrastructure projects," he said.
Some of the funds will also be channeled into retraining professionals for new jobs, Medvedev added.
The number of unemployed reached 5.8 million at the end of December, according to the Rosstat statistics office.
Officials have said the number of Russia's jobless could rise by over half a million in 2009.
Date created : 2009-02-17