Russia economy chief: Dire 2013 was low point

Russia's economy chief said on Friday that the country had survived the worst of its sharp growth slowdown and was now on the path toward a cautious recovery. But new data revision showed the $1.9-trillion (1.4-trillion-euro) economy expanding by an even worse than expected 1.3 percent in 2013 -- the second-worst performance of Vladimir Putin's 14 years in power and just a quarter of the Kremlin's target. And a precipitous ruble selloff that has sliced seven percent off the currency's value this month and showed few signs of halting on Friday put Putin under still further pressure despite the upbeat forecast. Economy Minister Alexei Ulyukayev rallied to Putin's relief by proclaiming the worst phase of Russia's growth slump over now that agriculture and industry were both picking up steam. "It seems to me that we passed the low point somewhere around the third quarter of 2013," Ulyukayev told a ministerial meeting. Russia's economy grew by 3.4 percent in 2012 and had been clipping along at a seven-percent pace during Putin's first two terms as Kremlin chief between 2000 and 2008. Fitch Ratings on Friday attributed the downshift to a "decline in investment and the inventory cycle" and forecast an expansion rate of 2.0 percent this year -- below the world average and lagging most other big emerging market states. Investor mistrust of Russia's economic reform efforts contributed to the ruble being swept up in a selloff of emerging market currencies at the end of last week. The Russian currency -- subject of two devastating post-Soviet devaluations that forced many to question the wisdom of market economics -- was trading down 0.3 percent against the euro at 47.60 rubles and not far off its historic low. The dollar was worth 35.25 rubles -- up 0.7 percent and once again approaching a five-year high it had set on Wednesday. Russia's Central Bank this year reduced its market interventions as it proceeds with the planned introduction of a fully-convertible ruble exchange rate by the start of 2015. Its First Deputy Chairwoman Ksenia Yudayeva gave the Moscow market a further fright on Wednesday by telling The Wall Street Journal that stress tests showed Russian banks being able handle a 30-percent ruble decline. "Politically, devaluation is an understandable move," said Moscow's Higher School of Economics professor Nikolai Petrov. "We have a large budget deficit (of 0.5 percent of gross domestic product) and there are not enough funds to fulfil Putin's election promises of 2012," Petrov told AFP. "The government consciously took this step." Capital flight risk But economists attribute at least some 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. Yet 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. He added that recent ruble weakness may translate into more expensive imports that push inflation above its annual target rate of 4.8 percent. The delicate balancing act between a loosening of ruble controls and the fight against nagging inflation prompted the Central Bank Chairwoman Elvira Nabiullina to stress on Thursday that the ruble free-float plan "did not provide for a complete end to intervention." The comment suggests that some authorities are alarmed by the pace of the ruble's deterioration and are now prepared to pursue currency support measures for longer than planned. "The Central Bank appears to be increasingly concerned about the extent of the recent fall," Capital Economics 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.