Russia Suffered Record Contraction in 2009

Russia’s economy shrank the most on record in 2009 after the price of oil slumped 77 percent from peak to trough and left businesses to start the year trying to adjust to smaller profits as banks cut off credit., Bloomberg 2/1/2010 10:47:34 AM

Gross domestic product fell 7.9 percent in 2009 after rising 5.6 percent the previous year, the State Statistics Service said on its Web site, citing preliminary figures.

President Dmitry Medvedev has called 2009 the hardest year” since Russia’s 1998 default. Banks withheld credit and companies were forced to restructure debts as 12 consecutive months of contracting industrial output depleted earnings. The sudden drop in Urals crude, the country’s chief export, to $32 in December 2008 from a peak of $143 in July that year ended a decade of growth in the world’s biggest energy exporter.

At the same time, oil’s 83 percent rebound last year helped to buoy the economy toward recovery, resulting in a smaller contraction than the government forecast.

Household spending shrank 8.1 percent last year, the office said. Net exports, or exports minus imports, grew 58 percent in 2009 while fixed capital investment fell 18.2 percent, according to the report. Russia has yet to publish official fourth quarter GDP figures.

GDP slumped a record 10.9 percent in the second quarter, underscoring what Medvedev in his Go Russia” open letter called a humiliating” reliance on commodities. Even as the contraction slowed to 8.9 percent in the third quarter, Russia’s performance lagged its emerging market peers. Brazil’s GDP fell 1.2 percent that quarter, while China’s grew 10.7 percent in the fourth and India’s increased 7.9 percent in the third.

Russia Suffered Record Contraction in 2009