Russia’s State Statistics Service published preliminary GDP estimates for 3Q19 that posted a 1.7% year-on-year growth in the quarter, up from 0.9% y/y in 2Q19 and only 0.5% in the first quarter.

The growth for the whole of the first nine months of this year was 1.1% y/y, which is almost half what the government was predicting at the start of the year.

The pickup in the third quarter was in line with the increase in basic sectors' output (a monthly proxy for GDP), which rose 2.6% y/y in 3Q19, up from 1.7% y/y in 2Q19, VTB Capital (VTBC) said in a note.

“While the breakdown of 3Q GDP by component is not yet available, monthly statistics show that the improvement in the quarter was driven by agriculture (output was up 5.1% y/y in 3Q19 versus 1.2% in 2Q19), wholesale trade (3.8% growth versus a 3.2% decline) and construction (0.5% versus 0.1% growth),” VTBC said.

The reason for the underperformance is that the government has been slow to spend money earmarked for the 12 national projects. The Russian government could undershoot its annual spending plans by more than RUB1tn ($15.6bn), a state watchdog warned on November 10 – the biggest shortfall in nine years.

In the first 10 months of 2019, government departments and agencies have spent less than two-thirds of the year’s planned expenditure, and will struggle to make up the difference before the end of the year, deputy chairman of the Audit Chamber Galina Izotova said at a Duma committee hearing.

So far, the government is running RUB778bn behind schedule – the biggest difference between the official budget and actual expenditure since 2010, Izotova said, in comments reported by Russian daily Vedomosti.

“GDP growth could accelerate further in 4Q19, potentially reaching close to 2% y/y, due to higher budget expenditures, which should support construction activity and investment. This would bring annual GDP growth this year close to 1.3%,” VTBC added.