The Russian economy recorded a year-on-year decline in economic activity of as much as 8.8 percent in January, as reported by the Russian Ministry of Economy.
On a monthly basis, a 2.4 percent decline in economic activity was recorded in January, announced last week by the Minister for Economic Development Elvira Nabiullina. Industrial production in January weakened by 16 percent compared to the same month of the previous year, while the construction sector was hit by a 17 percent decline in activity. Retail sales, on the other hand, recorded modest growth of 2.4 percent. Officials expect a decline in gross domestic product of 2.2 percent in 2009, while economists are significantly more pessimistic. “The entire first half of 2009 will be deeply in the red,” assesses Elina Ribakova, chief economist at Citibank Russia.
She attributes this to high interest rates, which the central bank uses to maintain the stability of the ruble, while the sharp decline last month is attributed to the effect of the reference base, namely, the high annual growth rate recorded in January 2008, of about eight percent. Economists link the sharp decline in GDP in this January to the near-total paralysis of the financial system due to the gradual depreciation of the ruble, which represents an incentive to exchange rubles for dollars rather than to lend them to the real economy.
