Russian Jul GDP Indicator shows worst of econ downturn passed

06.08.2009 (11:39)

The Russian economy continued to contract in July, but the annual rate of decline slowed further from April’s record 7.7% pace, London-based VTB Capital said in its latest GDP Indicator released Thursday.

In July, the GDP Indicator registered -2.9%, the most encouraging outcome of 2009 so far, VTB Capital said.
The GDP Indicator has spent eight months in negative territory, almost matching the nine-month sequence from August 1998 to April 1999 that marked the last recession in Russia.

Over the second quarter as a whole, the Indicator averaged -6.4%, lower than -5.4% in the first quarter. The first two quarters of 2009 have seen steeper contractions than in any previous quarter since the series began in June 1998, VTB Capital said.
The Total Activity Index continued its ascent towards the crucial 50.0 no-change mark in July. At 48.6, up fractionally from 48.4 in June, the latest reading pointed to the slowest rate of decline in activity across manufacturing and services combined since the current sequence began in October.

“The continuing improvement in the GDP Indicator is encouraging. The important trend highlighted by the July PMI surveys is rising new orders, coupled with low stocks of finished goods. This might indicate that restocking is on its way and that the economy could start to expand in the near term,” Aleksandra Evtifyeva, senior economist at VTB Capital, commented on the survey. “We attribute the recent slowdown in activity in the services sector to the sell-off on the financial markets in the first half of July, as it was mainly the “Financial Intermediation” sector that underperformed,” she also said.

“Cost pressures increased across the sectors. However, because competition remains high, producers and services providers were unable to pass costs on to customers. In order to preserve margins, companies continued to reduce their headcounts,” Evtifyeva said.

The GDP Indicator is derived from VTB Capital's Purchasing Managers Indices (PMI), which are surveys of business conditions in the manufacturing and service sectors of Russia. By weighing together the output measures from these surveys, an indicator of total output is produced.

VTB Capital plc is a London-based subsidiary of Russia's second largest bank, government-controlled VTB Bank. VTB Capital was previously known as VTB Bank Europe.

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