Russian economy still faces uncertainty

13:40, November 06, 2009      

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The Russian economy, which had been developing at high speed prior to the global financial turmoil and economic downturn, has suffered severe losses in the crisis. Nonetheless its prospect remains uncertain at present.

President Dmitry Medvedev estimated that Russia's 2009 Gross Domestic Product (GDP) may decline 7.5 percent compared with that of 2008.

Statistics showed that Russia's GDP contracted 10 percent in the first nine months this year. Though monthly GDP has continued to grow starting from June, none of the growth rates was higher than 0.5 percent.

Meanwhile Russia's industrial production declined 13.5 percent from January to September, with the process industry plunging 19.1percent.

One good news may be the high inflation that once bothered Russia has somewhat relieved. Prime Minister Vladimir Putin estimated that the inflation rate might be lowered to less than 9 percent this year.

However, lowering inflation rate turned out to have been followed by shrinking consumption.

The lowest monthly retail sales in recent years were recorded in August, with a decline of 9.8 percent compared to July. Residents' disposable income also shrank 6.8 percent in August, the highest among 2009.

The plummeting retail sales cannot be reviewed as positive when the economy shrinks, said Igor Nikolayev, head of strategic analysis department of Russia's first private auditing firm FBK.

In order to inject anti-crisis fund into real economy, Russian Central Bank has lowered its refinancing rate several times since April, from 13 percent to the current 9.5 percent. However, the capital inflow into the real economy was not quite smooth.

According to the financial daily Vedomosti, Russia's domestic loans have decreased some 300 billion rubles (around 10.3 billion U.S. dollars) since this fall, primarily caused by the harsh demands of commercial banks on credit quality and risk assessment.

Although the Russian government has paid special attention to people's livelihood while dealing with the crisis, including raising the pensions, Russian people were not so satisfied with the current anti-crisis measures.

Figures from the independent polling organization Levada Center showed that the percentage of respondents, who acknowledged the effects of financial crisis on their daily lives, has increased from 49 percent in March to 62 percent in September.

Some 39 percent of Russians believed their country was undergoing "the most difficult times," while another 33 percent thought the hardest days were still "lying ahead."

Numbers from Russia's Federal State Statistics Service also showed that every month the unemployed in Russia have been 10,000 to 15,000 more than those re-employed ever since January, concerning almost all sector including mining, construction, trade and finance.

Deputy Prime Minister and Finance Minister Alexei Kudrin once told reporters that there might be a surge in Russia's unemployment in the near future, triggering another outbreak of crisis.

Meanwhile the global financial crisis and economic meltdown have fully exposed the deficiency of Russian economy as it heavily relies on energy industry and overseas market, a tendency apparently cannot be twisted in the short term.

During the first nine months this year, the energy export accounted for 62.8 percent of Russia's total export, while the oil and gas revenue took up 39 percent of the entire federal fiscal income.

The economic situation of Russia thus remains highly uncertain because of the unsteady pricing development of energy sources.

Kudrin was quoted by Russian newspaper Komsomolskaya Pravda as saying that thanks to the increased liquidity, the oil prices recently rebounded, but as the GDPs of the United States and the European countries were expected to fall, the future demand for energy resources would not be huge.

According to Vadim Soskov, CEO of Russian company Kapital Asset Management, the rally of oil prices may only last for another six months before it dives.

Given the circumstances, the plan of Russian government to promote Ruble as a global reserve currency may confront setbacks.

Alan Greenspan, former U.S. Federal Reserve Board chairman, was cited by Vedomosti as saying that for the time being Ruble has no prospect of becoming such a currency due to its over-dependence on oil prices.

Even if the Russian government accelerated the diversification of its economy, investors would possibly accept Ruble as a reserve currency in no less than 10 years, he said.

Nevertheless, Russia remained confident in its economy. Deputy Economic Development and Trade Minister Andrei Klepach believed the economy might retain its pre-crisis level in 2012.

Renaissance Capital, a leading Russian investment bank, forecast that after going through deep recession in 2009, the Russian economy might start recovery in 2010, reach its peak in 2011, slow down its growth pace in 2012, and further slide in 2013.

Source: Xinhua
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