Russia’s GDP continues to shrink; no early recovery seen

The Russian economy shrank by a worse than expected 10.9 per cent in the second quarter of 2009 from output in the same period last year, pulled down by unemployment, restricted bank lending, and a delayed stimulus package that was approved just two months ago.

Nonetheless Russia's GDP did increase 7.5 per cent from the first quarter, initial data from the Federal Statistics Service released on Tuesday showed. In the first quarter, output had fallen 9.8 per cent year on year.

The government bureau is forecasting a contraction of up to 8.5 per cent in GDP in 2009, in a dramatic end to the robust growth the country enjoyed over the last half decade on the back of high oil prices.

Russia has been hit harder than other major developing economies by the economic crisis, which has shown up its failure to implement reform to reduce dependence on hydrocarbon exports.

''We can't develop like this any longer,'' President Dmitry Medvedev said on Tuesday during a meeting with political party leaders in the Black Sea resort of Sochi. ''It's a dead end. 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, Medvedev said.