Putin downbeat on Russia economy, data shows slump gaining pace

By Darya Korsunskaya and Oksana Kobzeva MOSCOW (Reuters) - Russian President Vladimir Putin said on Thursday it was still too soon to feel confident about the country's economy, in comments backed up by a raft of fresh data showing a slump in retail sales and wages and rising unemployment. However, Finance Minister Anton Siluanov suggested the worst was now over for Russia's economy despite low global oil prices and Western sanctions imposed over Moscow's role in the Ukraine crisis that have driven the rouble currency sharply lower. Putin told a conference of Russian businessmen the central bank's main interest rate, now at 14 percent, was high but warranted by the situation. Inflation stands at 16.7 percent, well above the central bank's 4 percent long-term target. Last week, the bank cut its main lending rate by 100 basis points, its second easing this year, in a sign it now sees declining growth as a more serious worry than high inflation. But businesses have complained that the rate remains too high. "Indeed, for now the key rate is high enough," Putin said. "For now, there are no fundamental grounds for us to feel confident." Economists had expected bleak data for February but the numbers were worse than predicted in a Reuters poll last month. Retail sales fell by 7.7 percent year-on-year in February, while real wages plunged 9.9 percent, demonstrating how high inflation is biting deeply into consumers' pay packets. Capital investment by Russian companies fell by 6.5 percent year-on-year in February, while unemployment rose to 5.8 percent from 5.5 percent in January. "The story is that domestic demand is collapsing because of the pressure on consumer demand because of the rouble devaluation," said Vladimir Kolychev, chief economist at VTB Capital. "That will continue to be the case at least over this year," Russian gross domestic product fell 1.5 percent in January in annual terms. Siluanov tried to put a brave face on the situation. "The end of last year and the beginning of this year were especially difficult when we saw volatility in the foreign exchange market, the value of our assets declining sharply," Siluanov told the same conference of Russian entrepreneurs. "SIGNS OF STABILISATION" "These two shocks hit us hard. Now, in general, we see that the worst is over and, quite the opposite, we see some signs of stabilisation." The rouble, which in mid-December fell briefly to 80 roubles per dollar, has been trading at around 60 roubles per dollar in recent weeks . But it is still 40 percent down against the dollar compared with the middle of last year. Russia is expected this year to record its first year of recession since 2009, the aftermath of the global financial crisis. According to the central bank's latest forecast, GDP is likely to shrink by 3.5 percent-4.0 percent this year. Keeping up pressure on Russia over the Ukraine crisis, German Chancellor Angela Merkel said on Thursday the Western economic sanctions would remain in place until all the conditions of a ceasefire deal are met. Echoing Siluanov, Economy Minister Alexei Ulyukayev also saw positive signs, telling Thursday's conference that inflation had peaked and that capital flight this year could be lower than expected and may even be below $100 billion. Ulyukayev said Russian GDP could grow by 2.0 percent-2.5 percent in 2016. The central bank has predicted the economic contraction will continue in 2016. (Additional reporting by Denis Pinchuk; Writing by Lidia Kelly, Editing by Jason Bush and Gareth Jones)