OREANDA-NEWS. The Russian Ministry of Economic Development and Trade estimates 3Q07 GDP growth to have slowed to 6.7% y-o-y in 3Q07 from 7.9% in 1H07, mostly driven by a significant deceleration of investment growth from a peak of 27.4% in July to 16.1% in September. Strong 1H07 expansion pushed 9M07 GDP growth to 7.4% while investment expansion was 21.2%.

Aton Capital's analysts attribute such a substantial deceleration of investment growth to the Russian economy adjusting to the global liquidity crisis, which reduced capital flows into the country and probably led to a reduction of investment activity. Thus, according to the balance of payments data released by the CBR in early October, Russian capital accounts have diminished from a surplus of over $47bn in 2Q07 to a deficit of roughly $1.7bn in 3Q07, largely due to a slowdown in banks' borrowings and some capital flight in August. "The development is in line with our previous estimates as we expected some deceleration of investment growth from the unusually high levels in 2Q07. Our forecast of 2007F investment growth is 18%," the Aton's experts point out. Real wages and disposable incomes continued to expand at robust double digit rates rising, respectively, by 14% and 13.5% y-o-y in September, or 16.2% and 12.4% y-o-y for 9M07. On the other hand, the Russian trade surplus has continued to deteriorate (down 14.8% y-o-y in 9M07) despite record oil prices, mostly due to the continued acceleration of imports.

"Overall, the estimates are in line with our forecasts and emphasize the high reliance of the Russian economy on domestic demand. Our estimate for 2007F GDP growth is 7.6%. We believe that continued robust expansion of real disposable income will continue to benefit sectors with strong exposure to Russian consumer demand, like retail stocks, services, consumer goods, etc. On the other hand, reduction of capital inflow and an investment slowdown could reduce growth in largely overheated sectors exposed to Russian investment demand, like steel, construction, construction materials and potentially banks with exposure to external capital markets. However, even if such slowdown takes place, we believe its scale will be contained," the experts state.