Russia Economy – March 2012

Source: OPEC 3/22/2012, Location: Asia

Russia managed to maintain a small fiscal surplus of about 0.8% of GDP at the end of 2011 despite the traditional surge in government spending in the last quarter of the year, thanks mainly to higher revenues from oil and gas. However, lower budget revenues are projected for 2012, consistent with a decline in the government’s planned oil and gas revenues that are supposed to be RB 700 bn (about $22 bn) less in 2012 compared to 2011. The government may consider a tax reform in line with Mr. Putin’s promises in December 2011 to improve the tax structure in favour of the business community. Economic growth is expected to continue to remain close to the 3.5-4% range in 2012 compared to 4.3% in 2011. A strong harvest in 2011 helped to bring inflation down and to increase real wages and disposable income. Demand was strong in 2011 and is expected to grow at a similar pace in 2012, supporting a more demand-driven economic growth. The agriculture sector expanded by 16.1% in 2011 while construction rose by 4.8%, although growth in manufacturing slowed down in 4Q11. In 2011, Russia’s oil output rose by 1.2% while crude exports continued to decline. Natural gas production increased by more than 3% in 2011 mainly due to production increases by independent producers.

Consumer prices rose by 0.4% on a m-o-m basis in December. Annual inflation at the end of 2011 was 6.1%. There was a moderate food price increase, which was a significant contributor to the moderation of inflationary pressures in the Russian economy. According to preliminary estimates from the Russian central bank (RCB), net capital outflows reached $84.2 bn in 2011, the second highest outflow after the financial crisis of 2008. According to the EIU (March 2012), around $30 bn of the capital outflows in 2011 have been labeled “fictitious transactions” by the RCB — representing capital flight. If uncertainty surrounding the economic policies of the new administration does not subside in the coming months, capital flight in 2012 could continue at the same pace or even increase, affecting the country’s overall economic growth.


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