…SHOW RECOVERY CONTINUING INTO 2000…

These data are consistent with the popular view that Russia’s 1999 recovery was driven by the ruble’s August 1998 collapse, which made imports unaffordable for many Russian households and companies. The Goskomstat data show that import volumes fell 46 percent in the fourth quarter of 1998, and by another 51 percent during the first quarter of 1999. Import substitution boosted Russian industrial production, but did little for household spending. These data do not support the view that Russia’s economic recovery in 1999 was due to higher oil prices, however. Instead, they indicate that the dollar prices of goods sold by Russian exporters on the whole fell by some 5-10 percent last year. These trends in the 1999 recovery also contrast with those of 1997, when Russia reported 0.9 percent GDP growth. The recovery in that year was due to a 5.4 percent increase in household consumption and moderate growth in net exports, while investment and public consumption fell sharply.

Goskomstat data show Russia’s recovery continuing, and strengthening, in the first quarter of this year (Sotsialno-Ekonomicheskoye Polozhenie Rossii, March 2000). Growth in industrial output accelerated to 11.9 percent during the first three months of 2000. Construction was up 10 percent, while growth in transport and construction was around 7 percent. Russia’s export growth also strengthened: the US$14.1 billion in exports recorded during January-February 2000 was the largest total registered for this two-month period since Goskomstat began keeping records. While high oil prices helped boost exports, other industrial branches also played a large role. Output in such export-oriented industrial branches as wood and paper, ferrous metallurgy, and chemicals grew by more than 20 percent during the first quarter.

Perhaps the best news of 2000 comes on the trade sector. Retail sales were up 7.3 percent, suggesting that the sharp decline in consumption that began in mid-1998 is now over. Agriculture was the only sector to report a slowdown in output growth (to 1.2 percent, from 6.3 percent in the fourth quarter of last year) in 2000, but since very little agricultural activity is conducted in Russia during the first three months of the year, this decline does not have much significance. These trends suggest that Russia’s GDP growth in the first quarter could well exceed the rapid rates reported for late 1999. President Vladimir Putin on April 20 went public with an estimate of 8 percent first quarter GDP growth (Moscow Times), while Goskomstat head Vladimir Sokolin on April 24 put the figure at 6-7 percent (Reuters, April 25).

…BUT WILL THE ENERGY SECTOR SLOW THE RECOVERY?