December 15, 2008 / 1:26 PM / 9 years ago

UPDATE 2-Russia Kudrin denies recession as industry slumps

(Adds Kudrin quotes)

By Gleb Bryanski and Toni Vorobyova

MOSCOW, Dec 15 (Reuters) - Russia is not in recession yet and next year’s economic growth could be up to 3 percent, Finance Minister Alexei Kudrin said on Monday, despite leaked data showing a sharp slowdown in industrial output.

Industrial production fell 8.7 percent year-on-year in November, while producer prices dropped by a record 8.4 percent month-on-month, Interfax news agency reported, quoting unnamed sources.

“We are not in recession yet,” Kudrin told a news conference after a government session.

Deputy Economy Minister Andrei Klepach, who oversees macroeconomic forecasting, caused a stir last week, when he said Russia -- which has seen average growth of around 7 percent in the past five years -- was in recession.

Kudrin said Russia plans to boost growth rates through tax cuts, interest rates subsidies, equity injections, lower growth in regulated prices and stimulating demand in housing and infrastructure sectors.

“Taking into account these measures in our new forecast, we expect positive growth next year, up to 3 percent,” Kudrin said.

That marks a sharp slowdown from 2008, for which the Economy Ministry estimates fourth quarter economic growth at 2.6 percent year-on-year and full-year growth at 6.0 percent.

The government is working on a new forecast, the release of which has been delayed due to uncertainty over economic prospects. Industry Minister Viktor Khristenko said authorities will get better visibility by the end of the first quarter 2009.

The likely sharp contraction in industrial output in November and December was flagged by the Economy Ministry last week when it slashed its forecast for full-year production growth to 1.9 percent from 5.2 percent.

The statistics service changed its calculation method for output in 2004, but Anton Stroutchenevski, economist at Troika Dialog, said the contraction was likely the sharpest since the financial crisis a decade ago.

“Now our situation is painfully reminiscent of 1998, when the economy was just falling on these (rouble) devaluation expectations. It started growing again only after they devalued,” he said.

“The giving of credits to the economy has virtually stopped, the banking system is not working... No one will give a loan in roubles with these devaluation expectations.”

The news came on a day when Russia allowed the sixth mini-devaluation of the rouble in five weeks, although authorities are still ruling out the possibility of a sharp one-off move in the exchange rate [ID:nLF619070].

Output was down 7.5 percent compared to October, Interfax said. Official data is due for release on Tuesday.

Despite Kudrin’s comments that Russia is not in a recession, analysts said the weak industrial output data increased the chances of negative economic growth.

“The sharp drop in industrial production for November month confirms our expectations of a severe economic slowdown,” said Lars Rasmussen, analyst at Danske Bank in Copenhagen.

“We are looking for a couple of quarters with negative growth in the Russian economy, and the question is whether Russia will have any growth in 2009 in total.” (Reporting by Toni Vorobyova and Gleb Bryanski; Editing by Toby Chopra)

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