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Russian officials upbeat on economy

January 29, 2008 | RBC

Despite gloomy forecasts by international observers.

While international observers predict more gloom for world economy, Russian officials are full of optimism. Their biggest challenge, however, is inflation, which the government hopes to curb to 5-6 percent by 2010. But international experts are pessimistic, saying inflation will remain at about 8.3 percent in Russia over the next three years.

A government budget planning committee met on Monday to revise Russia’s key macroeconomic targets for the next three years. The revision was prompted by a sharp increase in world oil prices in January, up to $90 a barrel. Rising raw material prices have prompted the government to raise its budget estimates for 2008. The oil price forecast for 2008 has also been raised, from an average of $53 to $74 a barrel. Budget revenues will increase by RUB 1.4 trillion (approx. $56.91bn), and spending will be RUB 313.3 billion (approx. $12.7bn) higher, Prime Minister Viktor Zubkov stated on Monday.

GDP growth forecasts for the next three years have also been revised. In 2008, the Russian economy is expected to grow by 6.7 percent, up from the earlier estimate of 6.1 percent. Andrei Klepach, Director of the Economy Ministry’s Macroeconomic Forecasting Department, said the upward revision was based on impressive GDP growth in 2007 (7.6 percent) and growing investment. Russia’s economic growth is becoming more investment-oriented, with a 21 percent increase in investment seen last year, up from 14 percent in 2006, according to Klepach.

Investment forecasts have also been raised. A higher inflation rate is projected for 2008, at between 7.5 and 8.5 percent, and an inflation of 5.8 to 7 percent is projected for 2009, 0.5 percent more than had been planned. By 2010, the Economy Ministry hopes to curb inflation to 5-6 percent with the help of structural economic reforms, effective anti-inflation measures and tighter monetary policy. Inflation targets could be revised in future, Klepach said, but the government would do its best to keep inflation at bay.

Meanwhile, experts are not as optimistic. Deutsche Bank predicts a 10.6 percent inflation rate for Russia this year, and 8.3 percent for 2010, seeing customs policy, ruble strengthening and sterilization of excess money supply as major anti-inflation measures. According to Yaroslav Lissovolik, Chief Economist of Deutsche UFG, the stimulation of domestic competition remains unused in the fight against inflation. It is necessary to use all available tools to curb inflation, he believes.

Analytical department of RIA RosBusinessConsulting


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