Inteligencia y Seguridad Frente Externo En Profundidad Economia y Finanzas Transparencia
  En Parrilla Medio Ambiente Sociedad High Tech Contacto
Economia y Finanzas  
 
03/02/2008 | First Estimate of Russian 2007 GDP Growth Exceeds all Expectations

Global Insight Staff

An apparent acceleration of growth in the fourth quarter of 2007 could explain the very impressive 8.1% growth for the full year reported by Russia's Federal State Statistical Service in a preliminary estimate of developments for the full year, although quarterly results through September could well be revised upward in March 2008.

 

Global Insight Perspective

 

Significance

With official projections only recently boosted to 7.7-78% growth in 2007, the reported 8.1% preliminary estimate exceeds even the most optimistic expectations.

Implications

The sharp decline in net exports reported for 2007 makes it clear that domestic demand is the driver behind rapid economic expansion rather than strong global demand for key exported commodities while imports advanced strongly, aided by a strengthening currency.

Outlook

Growth in exports will be limited on the supply-side as they are primarily fuels and metals while global growth is due to moderate and manufactured exports face a high competitive bar. Domestic demand will remain the key driver, but further declines in net exports will offset some of the expansion.

Russia's Federal State Statistical Service (RosStat) has published a first estimate of annual developments in GDP in 2007 disaggregated both by sector of origin and end-use. Growth of overall aggregate output reported at 8.1% in 2007, compared with 7.4% in 2006, exceeded the projections of any of the official spokespeople on Russian economic policy, including the Finance Ministry and the Ministry of Economic Development and Trade. The former had recently upped its estimate to a range of 7.7-7.8% while the latter had opined only in the final days of the year that the full-year result could go as high as 8%. On a sector-of-origin basis, growth was led by construction, with gross value-added (GVA) in that sector up 16.4% year-on-year (y/y) and by the trade sector where GVA increased by 12.0%. These sectors, which reflect strong domestic demand, were pacesetters in 2006 as well. GVA in industry accelerated as well in 2007, up 5.0% compared with 4.4% in 2005 and 3.8% in 2006. This was entirely due to faster growth in net output of manufacturing while the pace slowed for natural resource extraction and production and distribution of electricity, gas and water experienced a modest downturn, thanks primarily to a warmer winter quarter—the first quarter of 2006 saw a wave of extraordinarily harsh winter weather that strained the country's power grid. GVA in state administration, including national security, accelerated sharply to 7.7% in 2007 after four years of modest growth or mild contraction. The GVA in this sector largely represents wages and salaries of public-sector employees and military personnel which experienced hefty real increases in 2007.

Russian GDP by Sector of Origin, 2003-2007

% change

2003

2004

2005

2006

2007

Agriculture, hunting and forestry

5.5

3.0

1.1

3.6

3.1

Fishing and fisheries

3.4

1.2

2.8

4.9

1.9

Industry, total

8.8

6.4

4.4

3.8

5.0

 - Extraction of natural resources

10.8

7.9

2.8

4.9

1.9

 - Manufacturing

9.5

6.7

6.0

2.9

7.9

 - Production and distribution of electricity, gas and water

1.6

2.0

1.2

5.3

-0.3

Construction

13.0

10.3

10.5

11.6

16.4

Wholesale and retail trade and repair of vehicles and appliances

13.2

9.2

9.4

14.6

12.0

Hotels and restaurants

1.3

5.9

9.7

7.8

12.0

Transport and communications

7.2

10.9

6.2

9.6

7.6

Financial activity

9.6

9.9

11.9

10.3

11.4

Real estate operations, leasing and services

3.0

2.8

12.3

10.2

10.4

State administration, national security and social support

-0.5

4.5

-2.6

2.6

7.7

Education

0.9

0.4

0.4

0.8

1.0

Health and social services

-3.9

1.1

1.7

1.7

2.8

Other communal, social and personal services

0.0

12.4

2.1

10.3

10.5

Imputed services of financial intermediation

7.5

14.1

6.9

11.2

12.7

Net taxes on products

7.4

6.8

5.9

7.2

7.8

Gross Domestic Product

7.3

7.2

6.4

7.4

8.1

Source: RosStat

On the end-use side, final consumption rose at 10.8% y/y in 2007 compared with growth at under 9% in the preceding two years. Household consumption grew at 13.1% while government consumption grew at a more modest 4.9% but the latter can be compared with growth only in the range of 1.0-2.3% in 2003-2006. Gross capital formation, however, far outpaced the other categories of end-use, growing at 22.6% y/y in 2007, up from an already impressive 17.5% in 2006. Gross investment in fixed capital grew at 20.8% y/y while inventory investment surged by 34.7%, reflecting strong business confidence. Offsetting the surge in domestic demand to some degree was a continued decline in the surplus in trade in goods and services in real terms. Exports grew at 7.4% y/y in 2007, close to the 6.5% in 2005 and 7.3% in 2006. In contrast, imports of goods and services zoomed at 30.4%, substantially up from 16.6% in 2005 and 21.6% in 2006. As a result, the net export surplus narrowed by 30.7% following smaller but still double-digit declines in 2004-2006.

Russian GDP by End-Use, 2003-2007

% change

2003

2004

2005

2006

2007

Gross Domestic Product

7.3

7.2

6.4

7.4

8.1

Final Consumption

6.2

9.2

8.7

8.9

10.8

 - Household consumption

7.5

12.1

11.8

11.3

13.1

 - Government consumption

2.2

2.1

1.0

2.3

4.9

 - NPISH*

1.1

-11.9

-18.6

-0.2

-0.5

Gross Capital Formation

13.2

12.2

9.5

18.1

22.6

 - Gross fixed capital formation

12.8

12.6

10.6

17.5

20.8

 - Inventory investment

16.7

9.4

1.4

22.8

34.7

Net Exports

3.0

-12.2

-11.9

-15.3

-30.7

 - Exports of goods and services

12.5

11.8

6.5

7.3

7.4

 - Imports of goods and services

17.7

23.3

16.6

21.6

30.4

* Non-profit institutions serving households

Source: RosStat

Outlook and Implications

The quarterly series has not yet been updated through the final quarter of the year and will not be revised to match the annual results until March 2008. However, unless the growth rates in the first three quarters of 2007 are revised markedly upward, the only explanation for the 8.1% growth reported for annual GDP is a substantial acceleration of growth in the fourth quarter of the year. As of now, GDP is reported to have grown at 7.9% year-on-year (y//y) in the first quarter, 7.8% in the second and 7.6% in the third. In fact, just one day before the release of the first estimate, Russia's Finance Minister Alexei Kudrin announced his estimate that GDP growth for the full year would come in at 7.7-7.8%, already on the high side of market expectations.

Given the very steep decline in net exports of goods and services in real terms on a national income accounts basis, it is clear that domestic demand has been responsible for the rapid growth of aggregate output in 2007. Construction and retail trade on the sector-of-origin side and household consumption and gross fixed capital formation on the end-use side have been the pacesetters. However, domestic demand is driving up imports as well while exports, mainly crude and processed natural resources such as fuels and metals, are growing at a moderate pace due to supply-side considerations, including productive capacity and infrastructure-related constraints. Thus, according to the latest estimates, the surplus on trade in goods and services dipped by 30.7% in real terms in 2007 alone and was down by 53.2% relative to 2002. In nominal terms, the share of net exports in GDP shrank from 13.7% in 2005 and 12.7% in 2006 to only 8.5% in 2007. Going forward, we expect domestic demand growth to remain robust, but continued constraints on export growth, a slowing global economy, and surging imports will cause the developments in the trade balance to serve as a substantial drag on growth of aggregate output, In addition, 2007 will represent a high statistical base of comparison. Nevertheless, the implied acceleration in the fourth quarter of 2007 will probably induce us to boost our projection for 2008 somewhat from the 6.6% in our last quarterly forecast round.

Global Insight (Reino Unido)

 


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ver + notas
 
Center for the Study of the Presidency
Freedom House