Russian first-quarter economic growth below forecast, slowest since 2017

MOSCOW (Reuters) - Economic growth in Russia in the first quarter missed forecasts and slowed to its weakest level since late 2017, data showed on Friday, raising chances of an imminent rate cut by the central bank.

A view shows a Russian one rouble coin in this picture illustration taken October 26, 2018. REUTERS/Maxim Shemetov

Gross domestic product (GDP) rose 0.5% in the first quarter in year-on-year terms compared with 2.7% in the fourth quarter of 2018, the Russian statistic service said.

This brings Russia’s economy to the brink of recession as the first quarter growth print was the lowest since the fourth quarter of 2017 when the economy expanded by 0.3%, said Kirill Tremasov, a former economy ministry official and now head of research at Loko-Invest.

The economy ministry, which had previously forecast GDP growth at 0.8% in the first quarter, said after the data release that the slowdown was caused by weak domestic demand after an increase in value-added tax.

Poor economic growth may trigger action by the central bank (CBR) that had foreseen GDP growth at 1.0-1.5% in January-March and can lower rates to beef up the economy with cheaper lending.

“The weaker than expected GDP figure which sharply undershot the CBR expectations provides a strong argument for a 25 basis point rate cut at the upcoming June meeting with additional 25-50 basis points needed over the second half of 2019,” said Dmitry Polevoy, economist at Russian Direct Investment Fund.

Capital Economics research firm said a 25 basis point rate cut “is more likely than not” and the next policy meeting on June 14 after the latest GDP figures.

The central bank last held its key rate at 7.75% in April but said it could consider cutting rates as early as June.

Looking forward, Capital Economics said GDP growth should strengthen in the next few quarters.

Tremasov said the second quarter is unlikely to be completely different to the first three months but economic activity could pick up in the second half of 2019.

The economy ministry projects that its oil-dependent economy would expand by 1.3% this year. The central bank forecast growth at 1.2-1.7%.

Reporting by Polina Nikolskaya; Editing by Andrey Ostroukh