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. Last Updated: 07/27/2016

GDP Growth Slows as Inflation Picks Up

VedomostiPresidential aide Arkady Dvorkovich
The country's gross domestic product growth dwindled to 4.4 percent year-on-year in January, Economic Development and Trade Minister German Gref said Monday, Interfax reported.

This marks a major slowdown from nearly 8 percent growth in the same month in 2004. Growth in the whole of 2004 was 7.1 percent, according to preliminary figures.

January "was quite hard for the economy because of the 10-day holiday," Gref said. Russians only returned to work Jan. 11 after an extended New Year holiday.

President Vladimir Putin is determined to double the size of the economy within a decade -- but for that to happen the economy needs to keep expanding by more than 7 percent annually.

Analysts warn that the high growth rates of recent years are unlikely to be repeated as the energy sector runs into capacity constraints, while much-needed investors stay away, unnerved by the state's assault on oil major Yukos.

Economists, however, have said they believe the January slowdown is an unavoidable outcome of the extended holidays this year and is unlikely to impact the outlook for growth overall.

Nevertheless, news of the downturn came as a Kremlin advisor admitted that inflation is likely to overshoot the government's 8.5 percent target, in what could turn out to be another possible danger to growth.

Tariff hikes as high as 20 percent triggered the fastest monthly consumer price growth in three years in January.

"There have now appeared fairly real risks that inflation will again exceed the planned level -- 8.5 percent," Arkady Dvorkovich, head of the presidential administration's Expert Department, said in televised comments Monday.

Last year policymakers insisted for much of the year that 10 percent inflation was a realistic goal. It finally came in at 11.7 percent.

Dvorkovich added that allowing the ruble to appreciate faster would tackle inflation, but said there was a drawback.

"The other thing, which everyone including the Central Bank understands, is that it could have a negative impact on the competitiveness of Russian goods and lower the rate of growth of the Russian economy."

The 2005 budget allows for GDP growth of 6.3 percent in the whole year, but a Reuters poll published earlier this month forecast growth at a median 5.5 percent.

(Reuters, MT)