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Economy Chief Says Russia Survived 'Low Point'

Russia's economy chief said on Friday that the country had survived the worst of its sharp growth slowdown and was on the path toward cautious expansion in the coming year.

Economy Minister Alexei Ulyukayev said he thought Russia's $1.1-trillion economy had suffered its most dire phase in the fall of 2013 and that agriculture and industry were now both picking up steam.

"It seems to me that we passed the low point somewhere around the third quarter of 2013," news agencies quoted Ulyukayev as telling a ministerial meeting.

"Promising symptoms are becoming visible of a gradual improvement in the situation," the economy chief said.

Russia's growth reached an estimated 1.4 percent last year -- the second-worst performance since Vladimir Putin became prime minister in 1999 and just a quarter of the Kremlin's original target of five percent.

Fitch Ratings on Friday attributed the slowdown to a "decline in investment and the inventory cycle" and forecast an expansion rate of 2.0 percent this year.

"A shrinking labour force and lack of structural reform constrain long-term growth," Fitch Ratings said in a report.

Investor mistrust of Russia's economic reform efforts contributed to the ruble being swept by a wave of currency depreciation that struck emerging markets at the end of last week.

The Russian currency has lost more than six percent of its value against both the dollar and euros this year despite strong intervention by the Central Bank.

It bounced back from a historic low against the euro on Thursday but was down 0.5 percent on Friday afternoon to trade around 47.67 rubles.

The dollar was worth 35.20 rubles -- also up 0.5 percent and once again approaching a five-year high it had set on Wednesday.

Analysts attributed the slightly slowing rate of the ruble's decline to positive US growth data and a vow by Russia's Central Bank to spend an "unlimited" amount on the currency should it slip outside its previously-established trading band.

Russia's Central Bank this year reduced the amount of its direct interventions on the market as it proceeds with the planned introduction of a fully-convertible ruble exchange rate by the start of 2015.

But Central Bank Chairwoman Elvira Nabiullina said late on Thursday that the free-float plan "did not provide for a complete end to intervention."

Capital flight risk

Economists attribute a part of the ruble's troubles to a deteriorating current account balance that is being hurt by a steady outflow of foreign investor cash.

Capital flight reached $63 billion (46.5 billion euros) in 2013 and the government had hoped to see the figure shrink to $25 billion this year.

But First Deputy Economy Minister Andrei Klepach said that investors' recent turn against emerging markets could result in up to $35 billion leaving Russia in the first three months of the year alone.

"It looks like our target will have to be adjusted," news agencies quoted Klepach as saying.

He added that recent ruble weakness may translate into more expensive imports that push inflation above its annual target rate of 4.8 percent.

"But I do not think that we will move above 5.5 percent," Klepach stressed.

Some economists said the authorities appear to have been alarmed by the ruble's rapid deterioration and are now resigned to having to pursue currency support measures for much longer than originally planned.

"The Central Bank appears to be increasingly concerned about the extent of the recent fall in the ruble," Capital Economic said in a research note.

The London-based consultancy estimated that the Central Bank had bought about $5 billion (3.7 billion euros) worth of rubles on the Moscow Exchange in January -- a fraction of the $40 billion a month it was selling during the worst of Russia's 2008-2009 financial crisis.

"With some $500 billion in (gold and hard currency) reserves, it can stomach intervention on this scale for some time," Capital Economics said.

Source: Agence France Presse


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