* Gross domestic product grew 0.8 pct y/y in Q2
* Economy appears to have avoided recession for now
* May shrink in second half as western sanctions bite
By Jason Bush
MOSCOW, Aug 12 Russia appears for now to have
escaped an economic contraction, but recession is still likely
in the second half of the year as western sanctions over Ukraine
bite, analysts warn.
Preliminary gross domestic product data published on Monday
showed the economy growing by 0.8 percent in annual terms in
April-June, compared with 0.9 percent in January-March.
But the figure was flattered by one-off factors, and the
outlook for the rest of the year is rocky as U.S. and European
Union sanctions - and Russia's retaliatory ban on food imports -
exacerbate a climate of weak investment, high borrowing costs
and upward pressure on prices.
Russia's economic data are being closely watched to gauge
the impact of the sanctions, imposed over Moscow's annexation of
Crimea and what western governments see as its failure to curb
pro-Russian separatists in eastern Ukraine.
The measures are aggravating a slowdown that was already
evident in 2013: economists polled by Reuters at the end of July
predicted just 0.3 percent economic growth in 2014 as a whole,
with a 0.5 percent year-on-year contraction in the third
Monday's preliminary data did not provide an assessment of
quarter-on-quarter growth, leading to continuing speculation
over whether Russia managed to avoid a "technical recession" -
two consecutive three-month periods of negative
Answering that question depends largely on seasonal
adjustment methods, a complex technical matter that leaves the
question open until the more detailed data is published.
Most analysts calculated that Russia had avoided a technical
recession, but saw that as scant consolation for an economy that
will still struggle to avoid a contraction in the second half of
"Although growth slowed a touch in annual terms, output
appears to have grown over the quarter. Nonetheless, the respite
is likely to be brief," Capital Economics economist Liza
Ermolenko said in a note.
She estimated quarter-on-quarter growth in the second
quarter between 0.2 and 0.5 percent.
VTB Capital economist Vladimir Kolychev said all the growth
drivers in the second quarter were temporary: a one-off boost
from higher inventories, and higher-than-normal gas exports as
customers abroad stock up to prepare for potential disruption.
"We can see already from July numbers that exports of gas
are dropping and industrial production numbers are softer, and
it's not clear what could drive growth in the second half."
Expectations that Russia's economy will slow sharply in the
second half of the year partly reflect statistical effects. In
2013 growth firmed during the second half of the year, creating
a higher base to measure against.
Fears that the economy could soon begin to shrink have also
been heightened by the latest round of western sanctions. U.S.
and EU restrictions on the raising of foreign finance by major
Russian state banks are likely to raise borrowing costs in
Russia and exacerbate weakness in investment.
Russia's sweeping ban on most western food imports, enacted
earlier this month, will also cause pain at home by pushing up
prices and hitting consumers, whose spending has been the major
factor sustaining economic growth in recent years.
Data showing that car sales slumped by a dramatic 23 percent
in July indicated that consumers were already tightening their
Overall retail sales growth slowed sharply in June, rising
by 0.7 percent in annual terms, one-third of the pace of the
High inflation also means that the central bank will at best
maintain its current high interest rates, if not hike them
further, economists warn.
"The fact that there is lack of access to western capital
markets, and at the same time a tightening of borrowing
conditions on local markets, suggests that investment demand is
unlikely to pick up any time soon," said VTB Capital's Kolychev.
"That doesn't paint a very bright picture for growth in the
(Reporting by Jason Bush; Editing by Mark Trevelyan)