Russia's economy shrank by 7.9% in 2009, its worst economic decline since 1994, according to preliminary data released Monday.
As demand slowed in the wake of the economic crisis, a 77% drop in the price of oil, Russia's chief export, wreaked havoc in a broad swathe of the economy. Construction tumbled by 16.4% after growing by more than 10% in the previous year, while manufacturing sank 13.9% after a 0.2% gain in 2008, the Federal Statistics Service, or Rosstat, said Monday.
Russia has technically emerged from its 2008-2009 recession, with a slight expansion late last year, although the largely uncompetitive manufacturing sector continues to struggle and unemployment is rising. In a recently revised budget based on a $65 oil price, the Finance Ministry has said the economy could grow by as much as 3% in 2010, while other officials have predicted growth of 5% or more.
"The government wants to keep expectations modest," said Chris Weafer, chief strategist at Uralsib. "The last thing they need is to put a high number out there and disappoint."
Still, the country's 2009 performance lagged that of the other so-called BRIC emerging economies. Brazil is expected to end the year with a slight contraction, while India predicts solid growth and China is roaring ahead with expansion of 9.5%.
"These [BRIC] economies are Russia's peers only in terms of size and global importance," said Julia Tsepliaeva, chief economist at Merrill Lynch in Moscow. "They are not peers in terms of economic structure. Russia is a very commodity-oriented economy and suffered a great deal from lower oil prices and capital flight, with $138 billion leaving the country last year."
To nudge along the stagnant economy, Russia's central bank cut interest rates 10 times last year, bringing the refinancing rate to a record low of 8.75%. Bank lending has picked up slightly in recent months, and Deputy Central Bank Chairman Alexei Ulyukayev said in January that loan portfolios could grow by 20% in 2010.
He also signalled an exit from economic stimulus measures, saying government guarantees on the debt of strategic enterprises and central bank support for interbank lending probably won't need to be continued past 2010.