Russian economy edges near end of recession as contraction eases

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Russia's economy contracted the least since it slipped into recession at the start of last year as industry and farming added to oil's biggest quarterly gain since 2009 to steady the world's biggest energy exporter.

Gross domestic product shrank 0.6 percent in the second quarter from a year earlier after a decline of 1.2 percent in the previous three months, the Economy Ministry said Thursday in a monthly report on its website. The Federal Statistics Service will publish its first estimate next month. GDP in June slipped 0.5 percent from a year earlier and was flat on a seasonally adjusted basis for the first time since February, according to the ministry.

"Industrial production, transport and agriculture were the main factors behind the contraction slowdown," the ministry said. "Construction and retail sales continue having a negative impact."

The economy is on track for its longest recession in almost two decades after low oil prices pummeled public finances, prompting spending cutbacks by the government and forcing the central bank to allow the ruble to trade freely. While the International Monetary Fund forecasts GDP will return to growth in 2017 with a gain of 1 percent, President Vladimir Putin has warned that the economy will stagnate near zero if no new growth drivers are found.

Central bank Governor Elvira Nabiullina puts Russia's potential growth at as much as 2 percent in the medium term, calling for structural reforms and measures to improve the business climate to accelerate the economy. The Bank of Russia reviews interest rates on Friday after its first cut in almost a year last month. Most economists surveyed by Bloomberg predict the benchmark will stay at 10.5 percent.

The ruble appreciated 4.8 percent against the dollar in the second quarter after a gain of almost 10 percent in the previous three months, recouping most of last year's loss of 20 percent. A weaker exchange rate won't be enough to sustain the economy without a broader overhaul, according to the IMF.

 

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