This article originally appeared in The Wall Street Journal
MOSCOW—Russia got some unexpectedly upbeat economic news Wednesday, with industrial output picking up in March from the month before while weekly inflation slowed to the lowest rate in more than six months.
The results seemed to bolster top officials’ recent expressions of confidence that the worst will soon be over for Russia’s economy, which has been battered by western sanctions and the plunge in prices for oil, its main export. The ruble, which lost more than half its value against the dollar last year, is up 11% so far this year, and the Russian stock market has rebounded.
But economists warn that significant risks remain, with investment and consumer spending still falling as sanctions cut off access to capital and inflation eats into incomes.
Still, the worst fears of economic crisis voiced late last year as the ruble and oil prices were plunging have given way to signs of stabilization as oil prices have recovered.
Wednesday, the Federal Statistics Service said industrial output was up 0.4% in March from February in seasonally adjusted terms, following declines in the previous two months. For the first quarter, output was down 0.4% from a year earlier. Increases in oil and other extractive industries helped power the gains, as did sharp rises in output of foods and other products, imports of which have been cut by sanctions and the drop in the ruble. But the weakness in the consumer sector was also visible, with auto production down 19.7% in the first quarter.
Inflation, which had surged early this year to the highest levels in more than a decade, boosted by the impact of sanctions and the drop in the ruble, has slowed in recent weeks. Wednesday, the Statistics Service said consumer prices rose 0.1% in the week ended April 13, a tenth of the weekly rates seen earlier this year and the lowest rate since September.
Lower inflation is likely to make it possible for the central bank to continue lowering interest rates, which it raised sharply in December to stop the ruble’s plunge.
“The economy has reached bottom and is beginning to recover now. The experience of the 2008-2009 crisis suggests that the recovery would be assisted by stabilization of the currency and financial markets. Clearly, the recovery won’t be fast and easy,” said Anton Struchenevski, chief economist at Sberbank CIB.
Government officials have been increasingly upbeat. “There’s a decline, but it’s turned out to be less than even what the moderate optimists forecast,” Prime Minister Dmitry Medvedev said of economic growth Tuesday. Capital outflows, which surged last year, have slowed sharply in recent weeks, officials said.
Russia’s economy ministry reckons that after falling by up to 3% this year, gross domestic product will start growing again next year.
Other economists are more pessimistic.
“The big picture is still that of an economy in a deep crisis,” Capital Economics research firm said in a note Wednesday, noting that retail sales and consumer incomes are down this year and investment also is falling, undermining hopes of a quick rebound.
Retail sales, which reflect the strength of consumer demand—Russia’s most important growth driver—fell in early 2015 for the first time in more than five years, shrinking by 6.1% in the first two months of the year when real disposable incomes declined 0.7%.
“We expect a GDP [gross domestic product] contraction in the 5%-6% range in 2015 due to the impact of significantly lower oil prices and the large depreciation of the ruble. The medium-term outlook for the economy will be impaired by weak investment and the poor business climate, exacerbated by international sanctions,” Moody’s Investors Services said Wednesday.