Date: 5 May 2011
The event will be held in Moscow, Russian Federation, with the participation of distinguished participants from academia, government, civil society, international organizations, and the press. The list of well known participants making opening remarks, presentations and commenting on the publication includes:
Andrey E. Shastitko
Bureau of Economic Analysis Foundation
Head of Economic Department
Institute of Energy and Finance
United Nations Information Centre
Country briefing note <download pdf file>
Economic recovery begins, with industry and services both contributing to growth
The Russian economy has a large impact on other economies in the North and Central Asia subregion, inter alia through trade and remittance channels. After a 7.9% contraction in 2009, the economy began a gradual recovery and grew by 4% in 2010.
Growth began to gain momentum in the second quarter, with tradable goods and manufacturing leading the way. This then translated into more broad-based domestic demand growth in the third quarter, when retail trade and construction expanded by 5.9% and 2.2% respectively.
For the full year, industrial output and retail turnover grew by 8.2% and 4.4% respectively. The economy continued to benefit from stronger global demand and higher prices of oil and gas. Firming of the labour market also gave a boost to domestic demand, with unemployment rate falling to 6.7% in 2010.
The agricultural sector, however, was severely affected by worst droughts in decades.
Inflation picks up after the summer droughts
The severe drought and wildfires in the summer of 2010 fed inflationary pressures. Consumer price inflation kept on rising towards the end of the year, resulting in a 6.9% inflation for the full year.
The Government introduced a ban on grain exports in order to avoid food price inflation. The strengthening of the currency and a still-recovering domestic demand also kept inflation from rising higher.
Fiscal balance improves as support measures are gradually withdrawn
A large stimulus package and strong Government response to stabilize the currency and the financial sector laid the groundwork for recovery.
Fiscal deficit fell to 4.1% of GDP in 2010, from 5.9% previous year. Assuming that oil prices remain high, the Government aims to reduce the deficit further to less than 2% of GDP this year. At the same time, the Government has made a commitment to restore the non-oil fiscal balance, which improved only modestly in 2010 after deteriorating sharply in 2009.
Monetary stance becomes less accommodative and the exchange rate more flexible
The central bank maintained a nominally stable exchange rate for the rouble against a dual-currency basket consisting of the dollar (55%) and the euro (45%). As inflation began to creep up, however, currency appreciation was used as an effective mitigating response.
Entering into 2011, it was apparent that stronger measures were needed against accelerating inflation, which rose to 9.6% in January. The central bank raised all of its rates, including the refinancing rate, by 25 basis points in February, while also increasing reserve requirements and allowing a stronger rouble by further widening the currency's trading band in March.
Meanwhile, the financial sector is continuing its slow recovery from a large share of bad loans.
Strong growth in trade is accompanied by improvements in the capital account
Current account surplus rose to 4.5% of GDP in 2010, from 4% previous year. Trade surplus increased to $167 billion from $134 over the same period. Exports grew by some 31% in 2010, benefiting from higher prices of oil and gas, which make up two thirds of total exports. Meanwhile, imports also gained rapidly as the year progressed, growing by 37% for the full year.
The capital account also improved as total outflows continued to narrow down, from $133 billion in 2008 to $56.9 billion in 2009 and $38.3 billion in 2010. As a result, by the end of 2010, international reserves stood at $479 billion, equivalent to 33.8 percent of GDP.
Future outlook and policy challenges
The economy is projected to grow by at least 4.3% in 2011.
Key challenges will be to strengthen the investment climate, improve the situation in the food markets and lower inflation.
Food security was one of the main challenges in 2010. Adverse weather conditions affected grain production, leading to a spike in grain prices and an export restriction which had a heavy impact on the other economies in the North and Central Asia subregion.