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Russia set for 2.2-pct GDP contraction

MOSCOW - Russia’s economy will contract by 2.2 percent this year, a minister warned Tuesday, in the latest illustration of the impact of the economic crisis on its once booming growth rates.

“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.

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.

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 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.