Greatest Russian contraction of industrial output since 1998

Dec 16, 2008, 10:43 GMT

Moscow - Russia's industrial output contracted by 8.7 per cent year-on-year in November, the largest contraction in a decade, official statistics released Tuesday stated, fueling fears of an impending recession.

Russia's Federal Statistics Service attributed the slump to reduced demand for steel, paper pulp, fertilizer and coal brought about by the global downturn.

'The main driver of the decline could be the 25-30 per cent production cuts by major steel producers announced in October, triggering similar cuts in steel-related sectors such as coal and other mining and fertilizers,' Vladimir Osakovsky, chief economist at UniCredit Bank, said Tuesday.

Production dropped 10.8 per cent in November compared with the prior month after slowing 5 per cent in October and 6 per cent in September. It was the sharpest drop in output ever for Russia, newspaper Kommersant reported.

The steepness of the decline shocked economists and analysts alike and raised the likelihood of Russia entering a negative growth period, they said.

'If confirmed by the official figures, the scale of the decline in industrial output would exceed our and even the most pessimistic market expectations,' Osakovsky said before the figures were published Tuesday.

Some economists said the fall in production foreshadowed a recession for the first three quarters of 2009.

The government is adamant that Russia is far from entering a period of recession, despite the figures showing the largest drop in output since the national default of 1998.

Premier Vladimir Putin on Monday announced new measures for ensuring state crisis funds reached companies, pledging 1,500 firms would be eligible for support.

Finance Minister Alexei Kudrin announced a list of 300 companies representing about 85 per cent of the nation's gross domestic product (GDP) to be prioritized for financial aid.

The criteria for firms to make it on the list were employing more than 4,000 employees and an annual turnover of over 15 billion rubles (540 million dollars). Companies accounting for over 30 per cent of the work force in a city or region should also receive special consideration, Putin said.