Bangkok (UN Information Services) – The Russian Federation is forecast to slow to six per cent growth in 2008-2009 as tighter liquidity dampens investment and consumption, and following robust domestic demand that led to 8.1 per cent growth in 2007, according to the United Nations Economic and Social Commission for Asia and the Pacific (ESCAP).
In its Economic and Social Survey of Asia and the Pacific, ESCAP said the Russian Federation – the world’s eighth largest economy in purchasing power parity – was driven on by robust domestic demand growth, led by consumption and investment, with household demand rising 15.2 per cent and fixed investment up by 21.1 per cent in 2007.
The growth rates of industrial output were 6.3 per cent in 2007. The construction industry output remained robust especially in the housing sector, which reported a 22.3 per cent expansion over the first 11 months of 2007, while growth was also reported in the manufacturing, mining and extraction, led by oil and gas.
The Federation’s budget was reported healthy due to energy-related earnings in 2007, but with rising budget expenditure by 20 per cent in the last quarter the surplus was expected to decline to about three per cent of gross domestic product in 2007. The budget plan for 2006-2008 is set to focus on significant spending aimed at doubling public sector wages and improving transport infrastructure.
ESCAP said inflation had been kept in check by government-imposed price controls on foodstuffs in October 2007, while the strengthening of the exchange rate also helped keep prices down. Inflation, in fact, decelerated from 9.7 per cent in 2006 to nine per cent in 2007. But, the Survey noted, high energy prices and fiscal loosening were “expected to prevent consumer price inflation in the country from falling below 7.5 % per cent by the end of 2009.”
Growth was also being buoyed by foreign direct investment (FDI) flows, seen as playing a key role in developing and modernizing the economy of the Russian Federation.
In the first half of 2007, FDI reached US$25 billion “and could exceed US$55 billion by the end of the year” thanks to an improved investment climate. The amount of inflow now being recorded places the Russian Federation “not far behind the flows attracted by the leading emerging market recipient in Asia, China.”
ESCAP said the Government of the Russian Federation is expected to continue with a mixture of market-oriented policies and state intervention in sectors of so-called strategic importance. State acquisitions in 2007 included those in banking, engineering and metals sectors.
ESCAP is expecting the government to adopt a “less restrictive approach” to foreign participation in the energy sector, and that this will be introduced in 2008 following legal amendments to allow companies in which a foreign investor holds a controlling stake to bid at tenders for strategic fields and deposits.
Further information on the Survey can be found at:
For more information, please contact:
Hak-Fan Lau, UN Information Services, ESCAP
Tel.: +66-2-288-1866, Mob.: +66-84700-1147
Ari Gaitanis, UN Information Services, ESCAP
Tel.: +66-2-288-1862, Fax: +66-2-288-1052