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. Last Updated: 07/27/2016

Economy Shows More Signs of Life




Boosting hopes of a second year of economic growth, figures released Wednesday showed inflation slowing even as industrial output continued to surge, rising 13 percent year-on-year over the first two months of this year.


"These figures show that output growth in the industrial sector is not fading," said Vladimir Sokolin, head of the Russian Statistics Agency, at a press conference where he announced the industrial statistics.


Consumer prices were likely to rise between 0.7 and 0.8 percent in March, down from a 1 percent rise in February, Sokolin said.


Thanks to previous positive news regarding growth, inflation, tax collection and other factors, several analysts have raised their forecasts for Russian GDP growth.


Moscow investment bank Brunswick Warburg is among those now forecasting 5 percent growth in gross domestic product this year, with the stimulatory boost provided by the weak ruble proving to be much stronger - and more durable - than expected, said Boris Sinegubko, Brunswick Warburg's associate director.


"Devaluation effects have not disappeared," Sinegubko said. "The Central Bank and the government are keeping the real exchange rate low, giving the economy a competitive edge on international markets."


Brunswick is forecasting that industrial output will rise 7.1 percent.


After the economy had surprised observers by posting 3.2 percent growth in GDP for 1999 - and an 8.1 percent increase in industrial output - several economists had expressed skepticism earlier this year that the expansion would continue.


However, Wednesday's positive news came on top of several other positive indicators.


In a sign that the rise in industrial output may well reflect continued broad-based growth, power output - arguably the best gauge for general economic activity - was up 2.4 percent, seasonally adjusted for January and February.


Meanwhile, retail sales were up 6.1 percent for the same period, rising on the heels of 4.4 percent growth in household incomes.


And the Russian Statistics Agency has just revised its 1999 figure for expenditures on capital investments - an important measure for the sustainability of any economic growth - declaring that such outlays rose 4.5 percent last year, well up on the 1 percent increase previously reported.


That investment splurge has continued this year, with expenditures on investment up 4 percent in the first two months of 2000, the agency reported Tuesday.


If correct, these figures may answer some of the concerns voiced by Grigory Vygon, a researcher with the Institute of Financial Research, who is yet to be convinced that Russia's economic rally is sustainable.


"The data do not show much in the way of qualitative changes," he said Wednesday. "If growth takes place on obsolete equipment, it is meaningless."


The real for a nation's economic performance would be growth in investments, Vygon added.


Several investment banks, including Goldman Sachs and NIKoil, are also forecasting 5 percent GDP growth this year.


"We see generally a positive trend," said Andrei Abramov, macroeconomic analyst with NIKoil brokerage.


NIKoil's previous target was between 2 percent and 3 percent.


Goldman Sachs moved last week to revise its previous forecast of 3.4 percent to 5 percent.


However, these two and Brunswick are on the leading edge of optimism. The 5 percent growth figure is far from being generally accepted.


The Economics Ministry is forecasting 1.5 percent to 3 percent growth. And Renaissance Capital is predicting GDP growth of 2.5 percent, only half a point above its earlier target of 2 percent.


Meanwhile, Brunswick Warburg's Sinegubko was quick to caution that the domestic economy had started from a very low base, so high growth figures were not a huge surprise.


Indeed, even 5 percent growth this year would leave Russia a long way short of where it was before the 1998 crash. If the nation's GDP were to grow 5 percent in 2000, it would be a struggle to push total GDP above $160 billion for 2000, well down on Russia's 1997 GDP of $447 billion, according to the International Monetary Fund's September 1999 world economic outlook database.


The fastest growing sector this year has been light industry, which saw production jump 47.9 percent year-on-year on a seasonally adjusted basis.


A further four sectors topped 25 percent growth. Production of ferrous metals and pharmaceutical products rose 27.7 percent, chemical and petrochemical sector output increased 26.2 percent and the printing and publishing sector was up 26.0 percent.,


The only two industries that contracted were flour-grinding, which fell victim to low grain harvest volumes last year, and microbiology, which had reported double-digit growth last year.


Meanwhile, inflation may yet leap out of the box once the presidential election has removed some of the populist motivation for restraint.


"I do not think that prices will grow by more than 1 percent in March," said Sokolin at the Russian Statistics Agency. "Nobody will raise utility prices before the elections."


The consumer price index was up 3.4 percent in the year to Feb. 29, he said.


Meanwhile, bread was up 1.6 percent, capping a massive 53.7 percent rise over the preceding 12 months.