February 4, 2019 / 2:04 PM / 7 months ago

Russia's 2018 GDP growth above target, private consumption weak

MOSCOW (Reuters) - The Russian economy grew by 2.3 percent last year, preliminary data from the statistics service showed on Monday, beating official forecasts, but the expansion did not support private sector consumption.

FILE PHOTO - Construction cranes are seen behind the St. Basil's Cathedral and the Kremlin walls (front) in the capital Moscow, January 27, 2015. REUTERS/Maxim Zmeyev

The economy ministry last month cited a big rise in construction activity when raising its gross domestic product growth estimate for 2018 to 2 percent from 1.8 percent.

Rosstat, the statistics service which reports to the ministry, ramped up its construction sector growth for the first 11 months of last year to 5.7 percent from the previously reported 0.5 percent.

The ministry said earlier that the statistics service may have revised its construction growth figures for Russia’s northern Yamalo-Nenets region.

The ministry did not say which construction sites could have affected the statistics, though Novatek, Russia’s biggest private gas producer, runs its Yamal LNG plant in the region. The plant reached full production capacity in 2018.

PRIVATE CONSUMPTION WEAK

Higher economic growth should usually support the income of households and result in stronger spending. But in Russia, a country of 147 million people, private sector spending actually slowed down in the fourth quarter, analysts said.

“If we compare nine-month dynamics with the annual one, we can see that in the fourth quarter there was a slowdown in the households consumption,” said Natalia Orlova, the chief economist at Alfa Bank.

It was unclear from the preliminary Rosstat data what affected consumer spending in the last quarter, analysts say, expecting the statistics service to revise the data later.

Evgeny Koshelev, an analyst at Rosbank, said households might have been forced to slow down consumption at the end of the year to meet their credit liabilities, judging by strong growth in financial sector data.

Koshelev said consumer spending could be weak this year, too, due to accelerating inflation in Russia.

Inflation increased, partially spurred by the government’s decision to increase the value-added tax to 20 percent from 18 percent starting from Jan 1.

A Reuters poll showed analysts expect annual inflation in Russia to rise to 5.1 percent this year, staying above the central bank’s target of 4 percent. The central bank has raised its key rate in December trying to limit the pressure.

“Faster inflation can seriously undermine consumer potential (this year),” Koshelev said.

Reporting by Polina Nikolskaya and Gabrielle Tétrault-Farber; Additional reporting by Darya Korsunskaya; Editing by Jon Boyle, Katya Golubkova

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