November 20, 2018 / 2:26 PM / a year ago

Russian economy expands in October but consumption slows

MOSCOW (Reuters) - Russia’s economic growth accelerated in October thanks to higher output in the agriculture and industrial sectors, the economy ministry said on Tuesday, but other indicators showed growth remained patchy.

FILE PHOTO: Workers store aluminium ingots at the Rusal Krasnoyarsk aluminium smelter in the Siberian city of Krasnoyarsk August 14, 2012. REUTERS/Ilya Naymushin

Gross domestic product expanded by 2.5 percent in October compared with a year ago, up from 1.1 percent in September, the monthly data showed.

The pick-up in economic growth comes after a 1.3 percent expansion in the third quarter.

Sluggish growth and a lack of positive drivers fuel doubts among some economists over whether the economy would become one of the world’s leaders in a few years, as President Vladimir Putin ordered after his inauguration in May.

In October, a 3.7 percent increase in industrial output contributed to the broader economic growth.

Capital Economics research firm said their calculations suggest that GDP growth could have increased to 1.8 percent at the beginning of the fourth quarter.

“We expect this recovery to be sustained in 2019 and think that GDP growth will be stronger than most anticipate next year,” said Liam Carson, an economist at Capital Economics.

Other analysts, however, remain skeptical about the prospects for Russia’s economy, which, the central bank forecasts, could expand by no more than 2.0 percent in the whole of 2018.

Russian statistics services, or Rosstat, said on Tuesday retail sales growth slowed in October, while the increase of real wages came below a Reuters forecast.

Russian retail sales, which reflect the strength of consumer demand, rose 1.9 percent in October, year on year, down from 2.2 percent in the previous month.

Real wages rose 4.4 percent year on year in October, missing analyst expectations of 6.8 percent growth.

Consumers are becoming more cautious as private sector wage growth is more contained than in the public one, said Dmitry Polevoy, chief economist at Russian Direct Investment Fund.

In such conditions, there was no need for the central bank to hike its interest rate from 7.5 percent, Polevoy said.

The next central bank meeting is in December.

Rosstat data also showed capital investment by Russian companies rose by 4.1 percent year on year in the first nine months of 2018, compared with a 3.0 percent growth in the same period a year ago.

The data suggests that capital investment growth accelerated to around 5.5 percent in the third quarter from 2.8 percent in the second one, said Polevoy.

This contrasts with the economy ministry’s earlier prediction that capital investment will decline to no more than 2.3 percent in July-September.

Reporting by Polina Nikolskaya; Editing by Andrey Ostroukh

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