Gref sums up Russia's economic progress

"The results of the economic development in 2004 lay down a good foundation for further economic growth in the country in 2005," Minister of Economic Development and Trade German Gref said at a government session today.

Russia's economic growth in 2005 will be at least 6%, said the minister. Earlier, the 2005 economic growth rate was forecast at 5.9%.

Proceeding from this year's progress, the ministry forecasted the economic growth rate to reach 6.7%.

GDP growth forecasts have also been revised, said Mr. Gref. Earlier, the forecast was 6.6%. According to the minister, monthly GDP growth is expected at 0.5%, because the index decreased 0.2% in the first six months of 2004.

Mr. Gref remarked that the average annual price for Urals crude would be $30.4 per barrel in 2004, and $29 per barrel in the next six months. The new indicator of the average annual price will allow Russia to attain oil exports of $159-161 billion, said Mr. Gref.

A flexible monetary policy will allow Russia to keep inflation within 10% in 2004, the minister said.

"In the first six months, the rate of inflation was maintained with the help of a strict monetary policy," he said, "but it can be kept within 10% even with a flexible monetary policy."

According the minister, basic inflation, free from seasonal fluctuations, was 4.3% in the first six months of this year. This indicator decreased in the first quarter but stopped decreasing by the mid-year.

The minister also said that the rate of inflation was 1.5% behind the inflation schedule, which inspired hope that the planned indices could be achieved.

Mr. Gref said the problem of competitiveness of Russian commodities and services has become strained. "Domestic producers are not ready yet to compete with imported commodities," the minister said, stressing the need to increase the competitiveness of Russian enterprises. In his words, the government should pay particular attention to this problem.

Russian companies' poor competitiveness is largely due to their technological backwardness rather than to the stronger rouble, according to the minister. "71% of the surveyed industrial managers cited the technological backwardness as the main reason. Only 8% of managers pointed to the ruble rate as an important factor in this respect," said Mr. Gref.

Mr. Gref said by the end of the first 6 months of 2004 the ruble had grown as little as 4.6%, while in the similar period in 2003 the ruble rose by over 11%.

In the second quarter, the ruble declined against the dollar, according to the minister. However, the real effective ruble rate rose as the euro's position against the dollar improved.

Mr. Gref noted an increase in investment and consumer demand. The minister qualified that as a positive factor for Russia's economic growth.

"The Russian economy has managed to use a positive impulse from the favourable situation on the external market to promote the growth of consumer demand," said the minister.

In the first 6 months of 2004, consumer demand rose by 10.3% compared to 8.6% in the similar period last year, according to Mr. Gref. Domestic demand therefore contributed to GDP growth.

Russia's net exports account for as little as 11.4% of GDP despite growing oil and metal prices, and exports, according to the minister.

However, Mr. Gref said the export growth rate had outstripped the GDP growth rate. Exports increased by 23.7% in the first 6 months this year largely thanks to growing oil prices. The Urals oil price went up by more than 14% in the first half-year of 2004 compared to the similar period in 2003. Aluminium prices increased nearly by 20%, copper appreciated by 66.5%, nickel - by 61.5%.

Enterprises' investment demand predetermined an increase in consumer demand in the second quarter, according to Mr. Gref. Investment demand grew by 0.6% a month.

Retail trade was developing at a brisk pace in the second quarter, i.e. by an average of 1% a month. Therefore, imports outstripped exports. Imports hiked by 24.5% in the first 6 months of 2004 and domestic producers' contribution to GDP growth diminished somewhat, according to the ministry.