Russia's economy contracts at record rate

Russia’s economy contracted at a record rate last quarter as rising unemployment sapped consumer demand, bank lending stalled…

Russia’s economy contracted at a record rate last quarter as rising unemployment sapped consumer demand, bank lending stalled and the government was slow to respond with support measures.

Gross domestic product contracted an annual 10.9 per cent in the second quarter, the Federal Statistics Service said in statement today, citing preliminary data.

The median estimate in a Bloomberg survey of seven economists was for output to shrink 10.2 per cent. GDP expanded 7.5 per cent from the previous quarter.

The service’s data go as far back as 1995. Russia’s economic decline is worsening after output contracted 9.8 per cent in the first quarter, ending 10 years of expansion that averaged close to 7 percent.

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The worst global financial crisis since the Great Depression undermined demand for Russia’s oil, natural gas and metals. The country’s industrial production plunged as companies depleted stocks and struggled to raise funds during the credit crunch.

“We can’t develop like this any longer,” President Dmitry Medvedev said yesterday during a meeting with political party leaders in the Black Sea resort of Sochi.

“It’s a dead end. And the crisis has placed us in a situation where we will have to make decisions on changing the structure of the economy.”

Russia “crumbled” after commodity prices collapsed, Mr Medvedev said. Energy, including oil and natural gas, accounted for 68.8 per cent of exports to the Baltic states and countries outside the former Soviet Union in the first six months of the year, Russia’s Federal Customs Service said last week.

Bloomberg