Author`s name Alex Naumov

Foreign investors gain confidence in Russian economy

Russia’s economy expanded an annual 8.5 percent in the first quarter, higher than economists expected, as consumer demand fueled an investment boom.

The expansion followed 9.5 percent growth in the previous three months, the Federal Statistics Service said on Monday.

Growth in Brazil, Russia, India and China is outpacing the economies of the United States, Japan and the euro region, driven by wage growth, investment and consumer spending. The rapid expansion is also fueling inflation, which accelerated to 15.1 percent in May, and may be a signal that the economy is overheating, analysts said.

“I don’t expect any serious slowing in growth this year,” Alexander Morozov, chief economist at HSBC Bank in Moscow, said. “The risks are from rising inflation. The government doesn’t have a consensus that the economy is overheating — this implies that their first priority is sustaining fast growth, while the problem of inflation will be secondary.”

Russian industrial output grew an annual rate of 9.2 percent in April, the most in nine months, as output of trucks, cars and construction materials surged.

Real wage growth has advanced more than 12 percent every month this year, increasing demand for housing and consumer goods. The government expects the economy, the world’s 10th biggest, to expand 7.6 percent this year after growing 8.1 percent in 2007, the New York Times reports.

The Federal Statistics Service, or Rosstat, said construction, real-estate services and retail underpinned Russia's highest-ever first-quarter growth rate.

Analysts said the year-to-year numbers -- which Rosstat broke down only by production, not by expenditure -- were driven by expanding private consumption and fixed investments, Wall Street Journal reports.

According to RosBusinessConsulting, foreign investors will have more confidence in the Russian economy once the global financial crisis is over, Russia's Deputy PM and Finance Minister Alexei Kudrin told the 12th Annual Investor Conference today.

The country has passed its first real test, Kudrin said, despite the global financial turn-down, the Russian economy would remain stable as the global economic situation improved. The latest financial crisis has shown that Russia has created a safety cushion to counteract any negative influence from the global market, Kudrin noted.

Source: agencies