Russian Economy Bullish

Good news for the Russian economy as new information shows unexpectedly positive trends, a budget surplus, a growth rate three times that which was expected for 2009 and up to 5% in 2010, a stronger Rouble and solid macro-economic indicators. The future looks suddenly much rosier.

Ten marks out of ten for the Russian government’s handling of the financial crisis from 2007 to 2009, when unprecedented pressures were threatening a meltdown and when the spectre of the economic and financial collapse at the end of the 1990s seemed set to rear its head again.

Not so. A sensible policy of containment of public expenditure, while at the same time a shrewd investment programme (social expenditure) was maintained, protecting large areas of the economy and jobs; this has created a scenario whereby Russia can once again build up a sovereign fund and is looking at surprisingly positive growth rate prospects.

Just two weeks after President Dmitry Medvedev approved the 2010 budget, the Economic Ministry has presented a positive revision of its forecast. This does not mean that the budget will be substantially changed. What it does mean is that the Russian Government will be able to follow its proposed public spending programme while at the same time enjoying higher than expected growth rates, better oil and fiscal revenue and more positive macro-economic indicators, allowing it to once again build up a substantial reserve, or sovereign, fund.

On Thursday Deputy Economy Minister Andrei Klepach stated in his address to the DUMA that there might be a revision of budget parameters as from April 2010, when the 2011 budget is being prepared.

Business New Europe forecasts that for 2010, there will be a budget surplus of 1% instead of a deficit of 6.8% while the Russian Economy Ministry has upgraded its growth forecast from 1.6% to 3.1% for 2009 and according to Klepach, a possible 5% in 2010 and the Rouble is expected to be 17% stronger in 2010 than in 2009.

Andrei Klepach also declared yesterday that the economic contraction registered is slowing, this being visible in construction, sales and fixed YoY investment. Meanwhile, positive MoM growth rates were registered in GDP, incomes, transport and agriculture.



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Author`s name Timothy Bancroft-Hinchey