Kudrin Plays Down June's Weak Figures

MTBritain's Tony Blair, Kudrin and Renaissance Capital CEO Alexander Pertsovsky at an investor conference last month.
Finance Minister Alexei Kudrin on Tuesday played down worries about an economic slowdown after weak gross domestic product, capital investment and industrial production data for June.

June data showed GDP growth slowed to 6.5 percent from 7.7 percent in May, industry output to 0.9 percent from 6.7 percent and capital investment to 10.8 percent from 15.3 percent. The economy grew 8 percent year on year in the first half of 2008. "It is not possible yet to say the economic growth rate has come down," Kudrin was quoted as saying by Interfax.

He added that it was too early to draw conclusions from a single month's data but went on to blame inflation, running at a rate of more than 15.1 percent, for the country's economic woes. He said high inflation would eventually lead to an economic slowdown.

Kudrin's opinion is shared by many economists, who argue that the weak data were a blip and say the strong growth trend will resume in July. Kudrin, the government's leading fiscal hawk, says the country's economy is overheated and needs to slow.

June's soft data are likely to play into the hands of Kudrin's opponents in the government and the Kremlin who say the country needs tax cuts to maintain strong growth rates.

Last month, Kudrin renewed his rally to delay cuts to the value-added tax, putting him up against many other government officials, including President Dmitry Medvedev and Prime Minister Vladimir Putin, who have signaled support for a cut.

Deputy Economic Development Ministry Stanislav Voskresensky said at the same conference in June that the ministry was seeking to cut VAT by one-third, from 18 percent to 12 percent.

Both sides are expected to submit their arguments to the government by Aug. 1.

Reuters, MT