Publication: Monitor Volume: 6 Issue: 120

Because industry was the locomotive behind the 1999 GDP growth, the industrial slowdown suggests that Russia’s overall economic recovery could slow as well. However, the official data indicate that other sectors are emerging to pick up the slack. The volume of construction activities during the first four months of 2000 was some 10 percent above the level of January-April 1999, while growth in retail trade turnover and the volume of freight transport during this time was 8 percent and 7 percent, respectively. Investment spending during the first four months of the year was up a stunning 13 percent, while household survey data point to an 8 percent increase in personal consumption.

These reported growth rates are also benefiting from base effects, since activity in many of these sectors collapsed only after the August 1998 financial crisis. Retail sales and personal consumption, for example, did not report any growth until the fourth quarter of 1999. Household spending clearly remains well below pre-August 1998 levels. Average monthly wages according to the official statistics in April were still only US$71, down sharply from July 1998’s US$181. Still, compared to the April 1999 monthly wage of only US$56, household incomes are up sharply.

This apparent broadening of the recovery to sectors other than industry suggests that Russia is on track to report a GDP growth in 2000 which will be at least as large as 1999’s 3.2 percent. In the longer term, however, there seems to be near unanimity among Russian and international economists that Russia’s growth prospects depend on the introduction of structural reforms. Many of these reforms–designed to improve the investment environment and restructure Russia’s moribund banking system–are called for in the program sponsored by Economics Minister German Gref. This reform program, which has been the subject of intense speculation and press discussion for weeks, is to be formally presented to the Russian government on June 22 (Russian agencies, June 14).