Russian economy faces tougher fourth quarter, capital flight

Russia's economic outlook for this quarter has darkened as capital flight and funding strains in the banking system threaten to undermine the recent strong performance of the real economy, a Reuters pol8007489l showed on Thursday. Gross domestic product (GDP) should grow by 4.0 percent in 2011, down slightly from expectations of 4.1 percent growth a month ago, the poll of 16 economists and analysts forecast.
Although the economists' revisions are slight, they suggest that the economy, which grew by a robust 5.1 percent in the third quarter from a year earlier, cannot decouple from a glob al economy that is weakening as Europe's sovereign debt crisis saps confidence. Analysts lifted their forecast slightly for growth in 2012 to 3.7 percent, from 3.6 percent in last month's poll, but that still marks a moderation from this year.
A slowdown in growth will come as unwelcome news for Russia's ruling 'tandem' ahead of parliamentary elections in December, when President Dmitry Medvedev leads the ruling United Russia party ticket. In a job swap, Prime Minister Vladimir Putin will run in March 2012 for the presidency, the post he held from 2000-08 before stepping down after hitting the constitutional limit of two consecutive terms.
Natalia Shilova, economist at Binbank, said she expected growth to slow in the fourth quarter: "The situation in the United States and euro zone will remain complicated," she said. Most of the expansion of Russia's export-focused economy has been fuelled by high prices for crude oil, the country's main export, which have topped $100 per barrel for most of t his year, keeping the trade and current accounts in the black.
A bumper harvest has eased inflation pressures sparked by last year's drought-hit grain crop and sent food prices lower. Looking to 2012, economists' median growth forecast rose by a tenth of a percentage point to 3.7 percent, but that still would represent a slowdown and intensify the challenges Putin's next government would face.
In particular, rising social spending and extravagant defence spending commitments will force the government to make tough choices should the oil price remain below the $116 per barrel at which the budget balances for a sustained period. Uncertainty will keep capital flowing out of Russia in the next few months, bringing the total outflow to $65 billion this year, the poll showed, an increase from $60 billion seen a month ago and well above the $50 billion official forecast.
The government forecast presumes no outflow for the fourth quarter, as Russia has already lost nearly $50 billion in capital flight this year. Slower industrial output growth is seen behind the broader slowdown in Russia. The median forecast now points to a 4.8 percent increase in output this year and to a 3.2 percent rise in 2012 while a month ago economists saw 2012 industrial output growth at 4.2 percent.