Medvedev: GDP to fall more sharply than thought

Russian government figures showed that the economy shrank at an annual rate of 9.5 percent in the first quarter.

Dmitry Medvedev 224.88 (photo credit: AP)
Dmitry Medvedev 224.88
(photo credit: AP)
President Dmitry Medvedev warned Monday that Russia's economy will perform worse than expected this year and the country will have to squeeze spending for the first time in years. Outlining Russia's budget strategy for the coming years, Medvedev told a Kremlin meeting with government officials and top lawmakers that financial constraints would require strict economizing and tight controls over spending at all levels of government. "In 2009, unfortunately, we expect a sharper fall in the GDP than we had thought," Medvedev said. "The global economic crisis is far from nearing the end." Government figures Friday showed that the economy shrank at an annual rate of 9.5 percent in the first quarter. A quarter-on-quarter 23.2% drop includes eleven daylong New Year holidays, making it somewhat less revealing. Officials had forecast that Russia's GDP would decline by 2.2% this year, but that estimate has to be radically revised after the first quarter data were released. The International Monetary Fund has said Russia's GDP could drop as much as 6% this year - the most pessimistic outlook so far. Medvedev did not give a new estimate for the GDP decline this year. The Finance Ministry plans to present it soon. Russia has experienced a sharp reversal of an eight-year economic boom fueled by high oil prices, during which growth averaged about 7%. The economy started to nosedive last fall after the price of oil, Russia's key export, collapsed, investors pulled billions of dollars out of the country and industrial output slowed. Medvedev said the budget deficit would be at least 7% of GDP - "and that's an optimistic forecast." Finance Minister Alexei Kudrin told reporters after the meeting that Russia plans to cut spending in all areas, for the first time in years. He said the budget for the next three years would be based on a world oil price of $53, which he described as a conservative estimate. Medvedev pointed to social spending as the number one goal for Russia's 2010 budget. The announcement came as Deputy Prime Minister Alexander Zhukov said unemployment in Russia is 10.5%, or 7.7 million people - the highest level in years, according to Russian news agencies.