MOSCOW, Nov 12 (Reuters) - Russia's gross domestic product (GDP) growth slowed substantially in the third quarter, setting the country further apart from other major emerging economies, analysts said on Friday. Hit by severe summer drought that wrecked harvests and stifled economic activity, Russia's gross domestic product (GDP) expanded 2.7 percent year-on-year in the July-September period, preliminary data from the Federal Statistics Service showed. Although showing growth for the third quarter in a row, the expansion was nearly half of the 5.2 percent seen in the second quarter. It is still, however, above the Economy Ministry's most recent formal forecast of 2.2 percent. No estimate of quarterly growth has been released. "... based on the drop in the annual rate, we think that the economy probably contracted by something like 0.6 percent quarter-on-quarter in the third quarter," Neil Shearing, senior emerging markets economist at Capital Economics in London wrote in a note to clients. "The sharp drop in Russian GDP growth ... stands in stark contrast to the generally strong batch of data released elsewhere in the region earlier this morning and marks Russia out from the rest of the BRICs," he said, referring to Brazil, India and China. The export-heavy economies in emerging central Europe of Slovakia, the Czech Republic and Hungary on Friday beat analysts' forecasts for July-September growth. Chinese economic growth also dipped in the third quarter, but GDP still grew 9.6 percent year-on-year, down from 10.3 percent in the second quarter. Russia's economic slowdown had been expected in the third quarter chiefly because of the worst heatwave in decades that destroyed one-third of Russia's crops during the summer. "The summer was not a good one for Russia," Roland Nash, chief strategist at Renaissance Capital in Moscow, wrote in a recent note on Russia's GDP growth potential. "First, it was hit by the mini-crisis out of Europe. The cost of capital rose sharply and investment programmes were likely put on hold. Then, a drought and one of the hottest summers on record crushed agriculture, and forest fires across European Russia reduced output in August." Shearing at Capital Economics estimates that the heatwave likely knocked around 0.5 percent off GDP. The Statistics Service, or Rosstat, did not provide cumulative GDP growth for the first three quarters of the year, but the official forecast calls for around 4 percent GDP expansion for the whole year. Shearing said the target is unlikely to be reached now, with Capital Economics revising down its 2010 GDP estimates to 3.2 percent from previous 4.5 percent. This would still be a reversal of fortunes after Russia's economy shrank 7.9 percent last year -- its worst performance in more than a decade. Analysts at Renaissance Capital see the Russian economy expanding 3.6 percent in annual terms in the last three months of the year and growing a further 5.3 percent in the first quarter of next year. "Barring another external shock, we think increasing consumption, loan growth and loose fiscal policy will likely drive faster growth than the market currently expects in 2011," Nash said. A slowdown in Russia's economic recovery is being accompanied by a persistent budget deficit that came to 2.1 percent of GDP in the first 10 months of 2010, the Finance Ministry said on Friday. However, Russia's fundamentals remain fairly sound thanks to strong oil prices, with the trade balance posting a surplus of $10.41 billion in September, up from $7.96 billion in August. (Writing by Lidia Kelly; Editing by Giles Elgood/Ruth Pitchford) Keywords: RUSSIA GDP/ (firstname.lastname@example.org; +7 495 775 1242) COPYRIGHT Copyright Thomson Reuters 2010. All rights reserved.
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