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Russia’s economy surges, besting all forecasts

Strong figures for May point to a faster than expected recovery

An employee counts Russian ruble banknotes at a small private shop selling home appliances in Krasnoyarsk December 26, 2014. REUTERS/Ilya Naymushin

Russia’s Economic Development Minister Maksim Oreshkin has reported that Russia’s GDP growth in May was 3.1% whilst its industrial growth was even higher at 5.6%.

It is not clear what Oreshkin’s base of comparison is, though it is likely he is comparing May’s GDP and industrial output figures with those of May 2016.

Regardless, it is now clear that the Russian economy is surging as it recovers strongly from the recession.

The Central Bank, published a rather more modest report on Russia’s economic performance yesterday, putting the rise in industrial output in May at a still very impressive 4.8%, which the Central Bank however clearly reported as an increase in output over the figure for May last year.

The Central Bank has also predicted that industrial growth in annual terms will rise between 3.4% and 4% in June.

These differences in figures for the economy published by the Economics Ministry and the Central Bank are traditional in Russia.  Russia’s three major economic policy making institutions – the Economics Ministry, the Finance Ministry and the Central Bank – traditionally publish different figures for the economy, and make different forecasts, with the Economics Ministry consistently the most optimistic of the three, the Central Bank consistently the most pessimistic, and the Finance Ministry always coming in somewhere between the other two. For definitive figures one has to wait for those published by Rosstat, Russia’s state statistical agency.

For the record, in my experience the most accurate forecaster has been the Economics Ministry, though the latest figures – even if one takes those published by the Central Bank as the most accurate – surpass even its most optimistic forecasts.

Meanwhile inflation remains stable at 4.2% in annual terms, prior to its anticipated further fall over the course of the late summer, when prices for food products normally fall in Russia.

As for the budget deficit – a subject about which ridiculous things have been written – it is now forecast by the Finance Ministry to be no more than 1.6% of GDP in 2017, an amount the Russian government can finance without effort, whilst the international reserves held by the Central Bank – a subject about which ridiculous things have also been written – stood at $408 billion as of 23rd June 2017, up from roughly $350 billion during the worst period of the recession in 2015, despite denials from the Central Bank that it has been buying foreign currency on the currency markets.

From the Russian government’s point of view possibly the single most encouraging figure is the growth in capital investment, which the Central Bank has put at between 3% and 5% in the second quarter.

That shows that Russia’s recovery is investment rather than demand led – exactly as the government wanted and intended.

Overall the Central Bank is now predicting that annualised GDP growth in the third quarter this year may be between 1.3% to 1.8% – significantly above its earlier forecast, which had anticipated growth of around 0.9% to 1.3%.

Some people are now becoming even more optimistic, predicting GDP growth for the whole year to be as high as 2%, this despite real interest rates still being around 5%.

If so then forecasts of Russia’s economic growth rate equalling or surpassing the growth rate of the world economy as a whole may be realised sooner than anyone expected.

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