Heatwave hits Russian growth forecast

(News Today) - Russia has begun counting the economic toll of the worst heatwave since records began as economists warned that the wildfires and disastrous summer harvest could wipe as much as 1 per cent off the country's economic growth.

The record-breaking heatwave has destroyed grain crops across Russia, ruining close to a third of the country's forecast harvest, while wildfires raging in the Moscow region have spread noxious smog over the capital, forcing businesses to close and many to flee the city.

Alexander Morozov, chief economist at HSBC, said the combined impact of the heatwave on agriculture and general economic activity could reduce Russia's gross domestic product growth by about 1 per cent this year, a cost to the economy of about $15bn (€11bn, £9.5bn).

An estimated 10 to 13 per cent decline in Russian agricultural output this year would cost about 0.6 per cent of GDP, Mr Morozov said. Weather-related disruption to industrial production and the retail and services sector could account for a further 0.4 per cent decline.

Economists have predicted that Russia's economy will grow by about 4 per cent this year as the country starts to recover from its steepest recession in more than a decade. But Mr Morozov said the impact of the drought and fires could halt the recovery in the third quarter.

Industrial enterprises, including Avtovaz and GAZ, Russia's biggest carmakers, closed assembly lines this month, claiming high temperatures made working conditions unbearable on factory floors.

Many Russians fled heat and smog in big cities as officials warned that the heatwave carried health hazards. After carbon monoxide carried by the smog in Moscow surged to levels nearly seven times higher than acceptable norms over the weekend, a senior Moscow health official said death rates had almost doubled in the city. On Tuesday, a regional health official said death rates in the region surrounding the capital were up by a quarter.

Officials urged residents to stay at home to reduce exposure to the smog and a quarter of Moscow offices cut working hours, according to a survey by superjob.ru. Many investment banks and embassies were working on skeleton staff on Monday after many were evacuated from the capital.

"The heatwave is good news for ice-cream producers but otherwise it is difficult to find winners," Mr Morozov said.

However, Troika Dialog, the investment bank, warned against exaggerating the impact on Russia's economy. "It is tragic. It is debilitating and unpleas­ant. But we do not believe it is going to knock economic recovery off course," said Kingsmill Bond, the bank's chief ­strategist.

Although crucial as a source of employment, agriculture accounts for only 4 per cent of Russia's gross domestic product and just over 2 per cent of its export revenues.

But surging grain prices due to the drought-ravaged harvest are likely to stoke inflation in Russia, economists say, undermining the government's success in driving down inflation to post-Soviet record levels.

Renaissance Capital, the Moscow investment bank, recently raised its inflation forecast from 6.3 per cent to between 7 and 7.5 per cent.

Source : CNN

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