Russia’s Economy May Contract by 7.5% This Year, Medvedev Says

Russia’s Economy May Contract by 7.5% This Year, Medvedev Says


Oct. 11 (Bloomberg) -- Russia’s economy may contract by 7.5 percent this year after performing worse than anyone had predicted, President Dmitry Medvedev said in a televised speech.

“I must admit that we sunk below our lowest expectations,” Medvedev said in an interview to be broadcast today at 9 p.m. Moscow time on state television. “The real damage to our economy was far greater than anything predicted by ourselves, the World Bank, and other expert organizations.”

The government predicted last month that the economy will shrink by 6.8 percent in the second half, for a full-year contraction of 8.5 percent. Gross domestic product declined by a record 10.9 percent in the second quarter. Russia will return to growth in 2010, the government forecast in a report published on its Web site.

Unemployment “is a clear challenge for the president, the Cabinet and other government authorities,” Medvedev said.

The jobless rate fell to 7.8 percent in August, lower than previously estimated, from 8.3 percent in July on rising seasonal demand for agriculture and construction. The number of unemployed was 6 million, the Federal Statistics Service said.

The government must press to bring down inflation to 5 percent to 7 percent, according to the president.

“Then we will be able to lend at normal rates,” he said. “Then our citizens will be able to obtain mortgages and consumer loans at reasonable rates.”

Russian inflation fell to the lowest in two years in September as the cost of food slipped and the economic decline depressed consumer demand, paving the way for the central bank to cut rates further. Inflation fell to 10.7 percent from 11.6 percent in August, according to the statistics service.

Annual consumer-price growth may be “considerably lower” than 11 percent, allowing the bank to continue cutting rates, Bank Rossii Chairman Sergey Ignatiev said on Sept. 30. The rate in 2010 may be below the government’s official forecast for 9 percent to 10 percent, he said.

Russia’s goal is “to achieve a balanced budget or a budget with a minimal deficit within a year,” Medvedev said in the televised comments. “All the government’s efforts and decisions should be directed toward this end.”

Russia’s budget deficit held steady at 4.7 percent of gross domestic product in the year through September as the government spent 1.35 trillion rubles ($43.9 billion) more than it collected, the Finance Ministry reported Oct. 9.

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