Russia slashes economic growth forecasts, second time this year

A worker operates a mixer of fused aluminium at the foundry shop of the Rusal Sayanogorsk aluminium smelter outside the town of Sayanogorsk, some 480 km (298 miles) south of the Siberian city of Krasnoyarsk, August 21, 2013.

Credit: Reuters/Ilya Naymushin

By Darya Korsunskaya

MOSCOW | Mon Aug 26, 2013 11:02am EDT

MOSCOW (Reuters) - Russia cut its economic forecasts for the second time this year, increasing pressure on Vladimir Putin to revive growth that has faded since a state spending splurge helped secure his election to a third Kremlin term.

The Economy Ministry slashed its forecasts for 2013 and 2014 after growth in the second quarter of this year was the slowest since the slump of 2009, documents obtained by Reuters on Monday showed.

The news broke as the president made one of his many tours to key industrial regions - this time to Kemorovo in the Kuzbass coalfields - to demand greater urgency in developing Russia's vast resource base.

The lower growth forecast reflects home-grown problems of weak industrial output - now expected to barely grow this year - slowing investment and a waning of the feel-good factor that helped Putin win a third term as president in March 2012.

Not even oil prices at a historically-high $110 per barrel have been enough to avert the slowdown in the world's top energy producer - even if Russia's external surpluses and low debts do shield it from the current turmoil in other emerging markets.

"To grow this time it will not be enough to stimulate private consumption," said Vladimir Miklashevsky, an economist at Danske Bank.

Miklashevsky was referring to Putin's past reliance on distributing windfall energy revenues to boost living standards and drive average annual gross domestic product (GDP) growth rates of 7 percent during his first two presidential terms from 2004-08.

The Economy Ministry cut its 2013 forecast to 1.8 percent from 2.4 percent, also hit by weaker exports and consumption growth. The forecast was below median expectations of 2.5 percent growth in a regular Reuters poll of economists.

It downgraded the 2014 outlook to a range of 2.8-3.2 percent from 3.7 percent.

REALITY CHECK

Economy Minister Alexei Ulyukayev has warned that Russia's $2 trillion economy could stagnate, but played down risks of a recession, even though some economists estimate that real growth has now contracted for two consecutive quarters.

Weaker growth will put pressure on Finance Minister Anton Siluanov's budget, which is due to go before parliament soon and which foresees a modest deficit next year.

Economists see next year's forecast as over-optimistic.

"Growth may accelerate next year only if the government increases expenditure substantially," said Natalia Orlova, chief economist at Alfa-Bank.

The government has already broken Putin's pre-election pledge to balance the books by 2015, proposing measures that would only increase Russia's reliance on commodities.

The government has been considering various stimulus measures, unveiling a $13 billion investment plan to build new roads and railways by tapping a rainy-day fund.

Officials and bankers have been pressing, meanwhile, for easier monetary policy to lift growth towards the government target of 5 percent.

The central bank, now led by Elvira Nabiullina, Putin's former economic adviser, kept interest rates on hold in August. It has said it will start cutting rates when inflation is inside its target corridor of 5-6 percent, expected in the second half of 2013.

The economy ministry kept its inflation forecast for the end of 2013 unchanged at 5-6 percent, but raised its 2014 estimate by half a percentage point to 4.5-5.5 percent.

"The central bank will not cut rates. The global environment is setting higher rates in the world economy and we should not ignore it," said Orlova.

The rouble fell to its lowest in four years against the dollar-euro basket the central bank tracks, hit by capital outflows as emerging market investors expect the U.S. Federal Reserve to wind down its money-pumping measures.

(Writing and additional reporting by Maya Dyakina; Editing by Douglas Busvine, Ruth Pitchford)

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Russia slashes economic growth forecasts, second time this year

A worker operates a mixer of fused aluminium at the foundry shop of the Rusal Sayanogorsk aluminium smelter outside the town of Sayanogorsk, some 480 km (298 miles) south of the Siberian city of Krasnoyarsk, August 21, 2013.

Credit: Reuters/Ilya Naymushin

By Darya Korsunskaya

MOSCOW | Mon Aug 26, 2013 11:02am EDT

MOSCOW (Reuters) - Russia cut its economic forecasts for the second time this year, increasing pressure on Vladimir Putin to revive growth that has faded since a state spending splurge helped secure his election to a third Kremlin term.

The Economy Ministry slashed its forecasts for 2013 and 2014 after growth in the second quarter of this year was the slowest since the slump of 2009, documents obtained by Reuters on Monday showed.

The news broke as the president made one of his many tours to key industrial regions - this time to Kemorovo in the Kuzbass coalfields - to demand greater urgency in developing Russia's vast resource base.

The lower growth forecast reflects home-grown problems of weak industrial output - now expected to barely grow this year - slowing investment and a waning of the feel-good factor that helped Putin win a third term as president in March 2012.

Not even oil prices at a historically-high $110 per barrel have been enough to avert the slowdown in the world's top energy producer - even if Russia's external surpluses and low debts do shield it from the current turmoil in other emerging markets.

"To grow this time it will not be enough to stimulate private consumption," said Vladimir Miklashevsky, an economist at Danske Bank.

Miklashevsky was referring to Putin's past reliance on distributing windfall energy revenues to boost living standards and drive average annual gross domestic product (GDP) growth rates of 7 percent during his first two presidential terms from 2004-08.

The Economy Ministry cut its 2013 forecast to 1.8 percent from 2.4 percent, also hit by weaker exports and consumption growth. The forecast was below median expectations of 2.5 percent growth in a regular Reuters poll of economists.

It downgraded the 2014 outlook to a range of 2.8-3.2 percent from 3.7 percent.

REALITY CHECK

Economy Minister Alexei Ulyukayev has warned that Russia's $2 trillion economy could stagnate, but played down risks of a recession, even though some economists estimate that real growth has now contracted for two consecutive quarters.

Weaker growth will put pressure on Finance Minister Anton Siluanov's budget, which is due to go before parliament soon and which foresees a modest deficit next year.

Economists see next year's forecast as over-optimistic.

"Growth may accelerate next year only if the government increases expenditure substantially," said Natalia Orlova, chief economist at Alfa-Bank.

The government has already broken Putin's pre-election pledge to balance the books by 2015, proposing measures that would only increase Russia's reliance on commodities.

The government has been considering various stimulus measures, unveiling a $13 billion investment plan to build new roads and railways by tapping a rainy-day fund.

Officials and bankers have been pressing, meanwhile, for easier monetary policy to lift growth towards the government target of 5 percent.

The central bank, now led by Elvira Nabiullina, Putin's former economic adviser, kept interest rates on hold in August. It has said it will start cutting rates when inflation is inside its target corridor of 5-6 percent, expected in the second half of 2013.

The economy ministry kept its inflation forecast for the end of 2013 unchanged at 5-6 percent, but raised its 2014 estimate by half a percentage point to 4.5-5.5 percent.

"The central bank will not cut rates. The global environment is setting higher rates in the world economy and we should not ignore it," said Orlova.

The rouble fell to its lowest in four years against the dollar-euro basket the central bank tracks, hit by capital outflows as emerging market investors expect the U.S. Federal Reserve to wind down its money-pumping measures.

(Writing and additional reporting by Maya Dyakina; Editing by Douglas Busvine, Ruth Pitchford)

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Russia slashes economic growth forecasts, second time this year

A worker operates a mixer of fused aluminium at the foundry shop of the Rusal Sayanogorsk aluminium smelter outside the town of Sayanogorsk, some 480 km (298 miles) south of the Siberian city of Krasnoyarsk, August 21, 2013.

Credit: Reuters/Ilya Naymushin

By Darya Korsunskaya

MOSCOW | Mon Aug 26, 2013 11:02am EDT

MOSCOW (Reuters) - Russia cut its economic forecasts for the second time this year, increasing pressure on Vladimir Putin to revive growth that has faded since a state spending splurge helped secure his election to a third Kremlin term.

The Economy Ministry slashed its forecasts for 2013 and 2014 after growth in the second quarter of this year was the slowest since the slump of 2009, documents obtained by Reuters on Monday showed.

The news broke as the president made one of his many tours to key industrial regions - this time to Kemorovo in the Kuzbass coalfields - to demand greater urgency in developing Russia's vast resource base.

The lower growth forecast reflects home-grown problems of weak industrial output - now expected to barely grow this year - slowing investment and a waning of the feel-good factor that helped Putin win a third term as president in March 2012.

Not even oil prices at a historically-high $110 per barrel have been enough to avert the slowdown in the world's top energy producer - even if Russia's external surpluses and low debts do shield it from the current turmoil in other emerging markets.

"To grow this time it will not be enough to stimulate private consumption," said Vladimir Miklashevsky, an economist at Danske Bank.

Miklashevsky was referring to Putin's past reliance on distributing windfall energy revenues to boost living standards and drive average annual gross domestic product (GDP) growth rates of 7 percent during his first two presidential terms from 2004-08.

The Economy Ministry cut its 2013 forecast to 1.8 percent from 2.4 percent, also hit by weaker exports and consumption growth. The forecast was below median expectations of 2.5 percent growth in a regular Reuters poll of economists.

It downgraded the 2014 outlook to a range of 2.8-3.2 percent from 3.7 percent.

REALITY CHECK

Economy Minister Alexei Ulyukayev has warned that Russia's $2 trillion economy could stagnate, but played down risks of a recession, even though some economists estimate that real growth has now contracted for two consecutive quarters.

Weaker growth will put pressure on Finance Minister Anton Siluanov's budget, which is due to go before parliament soon and which foresees a modest deficit next year.

Economists see next year's forecast as over-optimistic.

"Growth may accelerate next year only if the government increases expenditure substantially," said Natalia Orlova, chief economist at Alfa-Bank.

The government has already broken Putin's pre-election pledge to balance the books by 2015, proposing measures that would only increase Russia's reliance on commodities.

The government has been considering various stimulus measures, unveiling a $13 billion investment plan to build new roads and railways by tapping a rainy-day fund.

Officials and bankers have been pressing, meanwhile, for easier monetary policy to lift growth towards the government target of 5 percent.

The central bank, now led by Elvira Nabiullina, Putin's former economic adviser, kept interest rates on hold in August. It has said it will start cutting rates when inflation is inside its target corridor of 5-6 percent, expected in the second half of 2013.

The economy ministry kept its inflation forecast for the end of 2013 unchanged at 5-6 percent, but raised its 2014 estimate by half a percentage point to 4.5-5.5 percent.

"The central bank will not cut rates. The global environment is setting higher rates in the world economy and we should not ignore it," said Orlova.

The rouble fell to its lowest in four years against the dollar-euro basket the central bank tracks, hit by capital outflows as emerging market investors expect the U.S. Federal Reserve to wind down its money-pumping measures.

(Writing and additional reporting by Maya Dyakina; Editing by Douglas Busvine, Ruth Pitchford)

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Euro zone private sector growth beats forecasts in August: PMIs

1 of 2. Workers are seen at a Vinci construction site in the financial district of La Defense, near Paris August 1, 2013.

Credit: Reuters/Benoit Tessier

By Jonathan Cable

LONDON | Thu Aug 22, 2013 4:44am EDT

LONDON (Reuters) - Business activity across the euro zone has picked up this month at a faster pace than expected, surveys showed on Thursday, led by Germany as it benefited from growing demand for its exports.

Survey compiler Markit's Flash Composite Purchasing Managers' Index (PMI) bounced to 51.7 from last month's 50.5.

It was the highest reading since June 2011 and beat all predictions in a Reuters poll whose median forecast was for 50.9. Readings above 50 signify expansion in activity.

While growth accelerated in the euro zone's biggest economy, it was a different story in France, the bloc's No.2 economy, which saw business fall as its economy went into a summer lull.

But Markit said the composite PMI, which surveys thousands of companies across the region and is used as an indicator of growth, pointed to a 0.2-0.3 percent economic expansion in the current quarter.

That is similar to a Reuters poll taken earlier this month that predicted growth of 0.2 percent this quarter.

"It's looking good. If the euro zone is picking up then that bodes well for the global economy. The wobble in France is a bit of a worry, but hopefully that will be corrected," said Chris Williamson, Markit's chief economist.

Growth returned to the region's dominant service sector - the services PMI rose above the 50 mark for the first time since the start of last year, coming in at 51.0 after 49.8 in July.

Similarly, growth quickened among manufacturers, whose PMI rose to a 26-month high of 51.3 from 50.3.

Both PMIs beat the median expectation in a Reuters poll and the services index came in above the most optimistic forecast. The manufacturing output index, which feeds into the composite PMI, bounced to a 27-month high of 53.4 from 52.3.

An earlier flash composite PMI from Germany showed the growth rate was the fastest in seven months but in France activity declined across the board.

Support from Germany and France, the 17-nation bloc's two biggest economies, helped it escape from its longest recession on record last quarter, expanding a better-than-expected but still modest 0.3 percent.

The problem faced by the European Central Bank in trying to stimulate growth - as it has been for some years - is still the heavily indebted south. But Williamson said manufacturing and services activity was improving in the periphery.

New business in the bloc increased for the first time in just over two years, and the composite subindex rose to 50.5 from 49.7, supported by orders coming in for manufactured goods from abroad at their fastest rate since May 2011.

Despite the upturn, expectations among services firms dipped from July's 16-month high and manufacturers reduced their workforce at a faster pace than last month.

"The job shedding in part reflects the need to keep costs down and remain competitive, but there is still some uncertainty about the outlook," Williamson said.

(This story corrects month in headline to August)

(Editing by Hugh Lawson) (Reporting by Jonathan Cable)

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U.S. housing starts rise in July but miss forecasts

Carpenters work on new homes at a residential construction site in the west side of the Las Vegas Valley in Las Vegas, Nevada April 5, 2013.

Credit: Reuters/Steve Marcus

By Lucia Mutikani

WASHINGTON | Fri Aug 16, 2013 9:09am EDT

WASHINGTON (Reuters) - U.S. housing starts and permits for future home construction rose less than expected in July, suggesting that higher mortgage rates could be slowing the housing market's momentum.

The Commerce Department said on Friday that housing starts increased 5.9 percent to a seasonally adjusted annual rate of 896,000 units. June's starts were revised up to show a 846,000-unit pace instead of the previously reported 836,000 units.

Economists polled by Reuters had expected groundbreaking to rise to a 900,000-unit rate last month.

Permits to build homes rose 2.7 percent in July to a 943,000-unit pace. Economists had expected permits to rise to a 945,000-unit pace.

"It's not a surprise given the recent rise in mortgage rates. I think we are looking at a situation that some air is coming out of the housing recovery given the higher mortgage rates," said Michael Hanson, senior economist with Bank of America Merrill Lynch in New York.

"At this point, affordability has not changed that much on a historical basis. Housing affordability remains high, but fundamentals are less favorable for new buyers than they were a couple of months ago."

Mortgage rates have spiked in anticipation of the Federal Reserve tapering the $85 billion in bond purchases it is making monthly to keep interest rates low and stimulate the economy.

Economists expect the U.S. central bank to make an announcement on tapering at its policy meeting next month.

U.S. stocks were poised to open slightly higher after the data. The dollar pared gains against the yen and fell to a session low against the euro.

The residential construction figures last month could also be a reflection of supply constraints. Builders have been complaining about a shortage of labor and materials.

Still, residential construction remains on a firmer footing and should again contribute to economic growth this year.

A report on Thursday showed confidence among single-family homebuilders neared an eight-year high in August, with builders fairly upbeat about sales prospects over the next six months.

Though residential construction only accounts for about 3.1 percent of gross domestic product, housing has a wider reach in the economy. Analysts estimate that for every single-family home built, at least three jobs lasting for a year are created.

Economists expect average monthly housing starts for the whole of 2013 to top 1 million.

Last month, groundbreaking for single-family homes, the largest segment of the market, fell 2.2 percent to a 591,000-unit pace, the lowest level since November last year.

Starts for multi-family homes jumped 26 percent to a 305,000-unit rate, reversing the prior month's decline.

Permits for multi-family homes rose 12.6 percent to a 330,000-unit rate. Permits for single-family homes fell 1.9 percent to a 613,000-unit pace.

A separate report from the Labor Department showed nonfarm productivity increased at an annual rate of 0.9 percent in the second quarter.

Productivity dropped at a rate of 1.7 percent in the first quarter. Unit labor costs - a gauge of labor-related costs for any given unit of output - rose at a rate of 1.4 percent in the second quarter after dropping in the first quarter at a rate of 4.2 percent.

(Reporting by Lucia Mutikani, additional reporting by Richard Leong in New York; Editing by Paul Simao)

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U.S. housing starts rise in July but miss forecasts

Carpenters work on new homes at a residential construction site in the west side of the Las Vegas Valley in Las Vegas, Nevada April 5, 2013.

Credit: Reuters/Steve Marcus

By Lucia Mutikani

WASHINGTON | Fri Aug 16, 2013 9:09am EDT

WASHINGTON (Reuters) - U.S. housing starts and permits for future home construction rose less than expected in July, suggesting that higher mortgage rates could be slowing the housing market's momentum.

The Commerce Department said on Friday that housing starts increased 5.9 percent to a seasonally adjusted annual rate of 896,000 units. June's starts were revised up to show a 846,000-unit pace instead of the previously reported 836,000 units.

Economists polled by Reuters had expected groundbreaking to rise to a 900,000-unit rate last month.

Permits to build homes rose 2.7 percent in July to a 943,000-unit pace. Economists had expected permits to rise to a 945,000-unit pace.

"It's not a surprise given the recent rise in mortgage rates. I think we are looking at a situation that some air is coming out of the housing recovery given the higher mortgage rates," said Michael Hanson, senior economist with Bank of America Merrill Lynch in New York.

"At this point, affordability has not changed that much on a historical basis. Housing affordability remains high, but fundamentals are less favorable for new buyers than they were a couple of months ago."

Mortgage rates have spiked in anticipation of the Federal Reserve tapering the $85 billion in bond purchases it is making monthly to keep interest rates low and stimulate the economy.

Economists expect the U.S. central bank to make an announcement on tapering at its policy meeting next month.

U.S. stocks were poised to open slightly higher after the data. The dollar pared gains against the yen and fell to a session low against the euro.

The residential construction figures last month could also be a reflection of supply constraints. Builders have been complaining about a shortage of labor and materials.

Still, residential construction remains on a firmer footing and should again contribute to economic growth this year.

A report on Thursday showed confidence among single-family homebuilders neared an eight-year high in August, with builders fairly upbeat about sales prospects over the next six months.

Though residential construction only accounts for about 3.1 percent of gross domestic product, housing has a wider reach in the economy. Analysts estimate that for every single-family home built, at least three jobs lasting for a year are created.

Economists expect average monthly housing starts for the whole of 2013 to top 1 million.

Last month, groundbreaking for single-family homes, the largest segment of the market, fell 2.2 percent to a 591,000-unit pace, the lowest level since November last year.

Starts for multi-family homes jumped 26 percent to a 305,000-unit rate, reversing the prior month's decline.

Permits for multi-family homes rose 12.6 percent to a 330,000-unit rate. Permits for single-family homes fell 1.9 percent to a 613,000-unit pace.

A separate report from the Labor Department showed nonfarm productivity increased at an annual rate of 0.9 percent in the second quarter.

Productivity dropped at a rate of 1.7 percent in the first quarter. Unit labor costs - a gauge of labor-related costs for any given unit of output - rose at a rate of 1.4 percent in the second quarter after dropping in the first quarter at a rate of 4.2 percent.

(Reporting by Lucia Mutikani, additional reporting by Richard Leong in New York; Editing by Paul Simao)

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