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. Last Updated: 07/27/2016

8.1% Increase in Output Is Post-Soviet Era Record

Industrial production has begun to climb out of a decade of depression, posting a post-Soviet era record 8.1 percent growth last year, the Russian Statistics Agency said Thursday.

The output hike was fueled mainly by the August 1998 ruble devaluation that priced expensive imports out of the market and lowered costs for domestic producers. Production now stands about 2.5 percent higher than 1997 levels and is back on par with 1995.

But economists warned Thursday the industrial output hike was based on weak economic foundations and that in some sectors growth had already begun to sputter into stagnation and decline.

"In seasonally adjusted terms the level of production overall is already 4 percent lower than the peak reached in July," said Peter Westin, an economist at the Russian European Center for Economic Policy.

While output for most industries stabilized in the last few months of 1999, textile and food-processing industries began to produce less, he said.

Economists say the industrial boomlet is running out of steam as consumer spending fails to keep step with output and investment remains dismally low.

In a rare statement on the economy Thursday, acting President Vladimir Putin conceded that despite last year's record economic growth, living standards were dropping and Russia had lost much of its influence over world economic processes.

"We cannot tolerate this and it must be acknowledged," Interfax quoted him as saying at a Cabinet meeting.

"We need to take energetic action on carrying out reform," he said. "Above all we need to strengthen state institutions."

Economists agreed Putin would have difficulty finding a quick fix for Russia's economic woes.

"The only way to seriously tackle the slowdown in industrial growth is to improve the investment climate through institutional reform and ensuring the implementation of law," Westin said.

Otherwise, investors will continue to stay away, he said.

Investment so far has mainly been in the oil and gas sector, leaving production in consumer goods industries, like the already declining food processing and textiles sectors, with little fuel for growth.

These sectors are already facing a crunch on demand as real wages are still 30 percent lower than levels in July 1998 and consumer expenditure figures for November last year stuck at the same levels as in November the year before.