Ex-Soviet economies start slow path to recovery

July 15. Reuters. MOSCOW/KIEV

By Toni Vorobyova and Sabina Zawadzki

* Russia, Ukraine show smallest output fall in 6 months * Kazakhstan unemployment eases
* Analysts say recovery to be slow, risks remain

The three biggest ex-Soviet economies showed signs of improvement on Wednesday, with Russia and Ukraine’s industrial decline easing and Kazakh unemployment down, though analysts said the road to recovery would still be slow.

Russia’s $1.7 trillion economy has been hit by the collapse in oil prices, falling demand for its exports, the flight of investors from emerging markets and a global credit crunch which has left companies struggling to refinance debt.

But data showed industrial output in Russia [ID:nMOS005481] and Ukraine [ID:nLF186699] both rose on the month in June, and the depth of the slowdown in annual terms – 12.1 and 27.5 percent respectively – was the smallest in six months.

Kazakhstan, also a major source of oil and gas, reported a moderation in the pace of its own output decline earlier this week, and on Wednesday it unveiled a fall in the jobless rate to 6.7 percent in the second quarter.

“We can talk about some green shoots of recovery…This kind of data only comes as confirmation of this trend,” said Ivan Tchakarov, economist at Nomura. “But of course…we are starting from a very low base. So even if we see some improvement in the data, at first it is going to be very modest improvements.”

Two million Russians have lost their jobs since August and many more are struggling with lower salaries and shorter working weeks. Imports have fallen, sending waves through nearby states which are reliant on Russian demand.

That has added to woes from falling commodity prices for most of the region, where manufacturing still takes a distant second place to oil, gas, steel and other raw materials.


Although the latest data brings some signs of optimism about the future, it also reinforces the need for caution.

“The development adds to positive sentiments towards Russian markets and the rouble. However, we see at least two factors that could discount the positive effect of the news,” Unicredit analyst Vladimir Osakovsy said in a note.

“Firstly…the low base effect of exceptionally weak June 2008. Secondly, there are high risks that the recovery in auto production might prove temporary as several auto producers have been downsizing production and closing plants…for 2-3 months.”

Kazakhstan’s trade surplus shrank 78 percent year-on-year in January-May as exports, dominated by oil and metals, collapsed much faster than imports [ID:nLF43242].

In Ukraine, the heaviest hit sector is machine building, down 48 percent in June year-on-year. Construction material production shrank 42.2 percent and metals 39.3 percent.

With oil <URL-E> around a third cheaper than a year ago and steel worth roughly half as much as then [STL/], even if output returns to pre-crisis levels companies will be making much less cash on their produce.

“There is growing evidence that we are probably at the bottom …It’s stabilisation but we are clearly still missing the momentum to say it’s a turnaround,” said Zsolt Papp, chief economist for Eastern Europe at KBC Securities in London.

“The risk of just stagnating at these levels is quite prominent.”