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Russia Economy – February 2011

Source: OPEC 2/23/2012, Location: Asia

According to estimates from the Russian Ministry of Economic Development, seasonally adjusted real GDP rose by 0.3% month-on-month in November, corresponding to an annualized growth rate of 5.4%, which exceeded the average growth rate of 4.4% in January November. However, industrial output increased by only 0.3% in November compared to the previous month, the slowest monthly growth to date in 2011. Industrial output grew by 3.9% year-on-year. Electricity, water and gas production growth was 3.2% on an annual basis. Domestic demand, nevertheless, remained strong, boosted by the traditional year-end increase in public spending. The investment outlook also remained positive (EIU Country Report, January 2012). The traditional year-end surge in public spending brought the Russian budget to a deficit for the first time during the year. The deficit amounted to 1.6% of GDP. Excluding oil and gas revenues, the deficit could be as high as 7.2% of GDP.

In late December, the Central Bank of the Russian Federation (CBR) cut the key refinancing rate from 8.25% to 8.0%. At the same time, the repo rate — which is the key rate for providing liquidity to the banking system — remained unchanged at 5.25%, while the short-term deposit rate was raised by 25 basis points (EIU Country Report, January 2012). It seems that following the moderation of inflationary pressures in Russia, concern over economic growth took over concerns about inflation. In another important development, Russia is set to enter the World Trade Organization (WTO) in 1H12 after two decades of negotiations. This should also open its way to membership in the OECD, which would enhance foreign investment in Russia as the global financial markets will recognize Russia as an economy operating on market principles. However, when it comes to quality of business environment, the gap between Russia and OECD countries remains large. According to the latest OECD report, the business climate in Russia is significantly worse than in most OECD countries.

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