UPDATE 1-Russia's economic growth accelerates to 10.9% y/y in May

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MOSCOW, July 1 (Reuters) – Russia’s gross domestic product (GDP) rose 10.9% year-on-year in May, the economy ministry said on Thursday, as the oil-dependent economy continued its recovery from the pandemic shock of 2020.

In the first five months of 2020, GDP grew 3.7%, the ministry said, rebounding from the corresponding period of 2020, when the economy took a hit from a sharp drop in oil prices and lockdowns designed to limit the spread of the novel coronavirus.

“As a month earlier, non-commodity sectors, such as agriculture, construction, manufacturing gave the main support to GDP,” the ministry said in a statement.

It also revised April economic growth to 10.8% from a previously reported 10.7%.

The GDP figures underpin the general trend of economic rebound in Russia after GDP contracted by 3% in 2020, its sharpest in 11 years.

This year, the economy is expected to expand by around 3%, the economy ministry predicts, while the central bank expects GDP to grow by 3%-4%.

Russia’s unemployment rate fell in May to 4.9%, data showed on Wednesday, markedly below analysts’ forecasts and heading towards pre-crisis levels targeted by President Vladimir Putin.

But high inflation and a weak rouble are clouding the outlook, prompting the central bank to tighten monetary policy.

Inflation is a sensitive issue ahead of a parliamentary election in September, as it further squeezes real incomes hurt by the COVID-19 pandemic.

A Reuters poll showed on Wednesday that the central bank is now expected to raise its key interest rate for the fourth time this year in July, to 6.0% from 5.5%.

Higher rates are aimed at taming inflation by making lending more expensive and bank deposits more attractive.

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