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. Last Updated: 07/27/2016

Economists: Forget WTO, Economy Just Fine

Forget about Russia's troubled bid for membership in the World Trade Organization -- the economy is healthy and set to keep on growing next year.

That's the message coming from some of the country's leading economists from the Association of Independent Centers for Economic Analysis.

"Economic growth has exceeded all our expectations," Yevsei Gurvich, head of the Finance Ministry's Economic Expert Group, said Wednesday.

The government has upped its forecast for economic expansion in 2003 to about 6.7 percent, marking the fifth consecutive year of growth. Originally it had predicted the economy would grow just 4.5 percent this year.

Consistently high oil prices played a large role in buoying the economy, although some economists argue that the country is diversifying and becoming less dependent on oil exports.

"Next year will be very similar to this year, according to our forecasts," Gurvich said. "And this is good for all of us as Russian citizens."

The continuing surge of growth, combined with qualitative changes in the economy, is making the country's stalled application for WTO membership less urgent at the moment, the economists said.

Furthermore, entry into the organization is unrealistic for another four to five years anyway.

Currently the country is at loggerheads with the European Union, which as a precondition for WTO membership is demanding that Moscow stop subsidizing energy prices.

"It is hard to imagine that [Russia] would accept that," said Leonid Grigoryev, president of the economic analysis umbrella group AICEA.

Instead of bending to demands from the EU or the United States, Russia should wait until it can join on its own terms, said Andrei Klepach, director of Development Center, an independent analytical group.

"We will enter the WTO ... but not because we satisfied their demands. The key factor will be that our economy will become as attractive and interesting to them as China's," Klepach said.

"We believe that next year there will be decreasing -- but not low -- oil prices, and that nothing will threaten the budget. The price of Russian exports will be stable," said Grigoryev.

The government's 2004 forecast for economic growth is 5.2 percent; the price for benchmark Russian crude Urals $22; and inflation between 8 and 10 percent.

Economists said next year they expect up to 5.5 percent gross domestic product growth; an average price on Urals between $23 and $26; and inflation from 10 to12 percent.

Klepach said that the high price of oil, which accounts for 25 to 30 percent of GDP, is not the only motor behind the country's powerful economic growth.

The most unexpected component of growth, Klepach said, was that the electricity and machinery sectors -- and not just oil and gas -- reported an investment boom this year.

"In the previous years the industry was falling behind other sectors. Now we have an industrial boom as the manufacturing sector grew 14 percent," he said.

"There haven't been any revolutionary changes. However, despite a significant rise in imports, the niche for domestic production to grow has remained."

"Not only quantitative but qualitative changes have occurred in the Russian economy. The question is whether we will nurture these positive changes," Klepach said.

Klepach's colleagues agreed with him.

Gurvich argued that the economy's dependence on oil is decreasing: "Our estimates show that this dependence is firmly and steadily falling."

The share of national income from oil exports decreased from 38 percent in 2001 to 33 percent in 2002 and "it is clear that the process continued this year," he said.

Gurvich said that he would expect the country's sovereign credit rating to be upgraded by the Fitch rating agency after the presidential elections, but doubted Standard & Poor's would do so.

On Tuesday S&P said that the economy has become more dependent on oil and metals in the past year, generating some 75 percent of export revenue, up from 60 percent a year ago.

S&P had said last month said it would downgrade the country's rating if investigations into Yukos shareholders resulted in capital flight or economic damage.

In the third quarter of 2003, private capital flight from the country was $7.7 billion after having an inflow in the first half of the year, according to the Central Bank.

The economists said it was still unclear how deeply the Yukos affair would hit the economy.

"The short-term impact has been less than expected," Gurvich said. "But the long-term consequences are inevitably going to be negative. Though we still don't know what's going to happen [jailed Yukos founder Mikhail] Khodorkovsky, and the company."