PREDICTIONS OF RECESSION VS POSITIVE INDICATORS.

Russia’s industrial slowdown, combined with recent gloomy developments in both the United States and global economies, has led many economists to predict that Russia is headed for a recession–if indeed one has not already begun (see the Monitor, March 27). This claim has been made by, among others, Andrei Illarionov, President Putin’s economic advisor (see the Monitor, February 21). Because industry is the Russian economy’s single largest sector, and because industrial output now seems to be grinding to a halt, such forecasts could well be correct. A number of other indicators, however, would suggest otherwise.

For one thing, the industrial output data showing only 0.8 percent growth in February 2001 compared to February 2000 is somewhat misleading in that February 2000 was a leap month. This meant that February in 2001 had one working day less than it did in 2000, which makes production comparisons of these two months less favorable than would otherwise be the case. When adjusted to reflect the difference in working days, Russia’s industrial growth in February rises to nearly 5 percent. This suggests that concerns about a dramatic industrial slowdown may be premature.

Second, most of the other sectors continue to report strong output growth. While little or no output growth was reported in the transport and agricultural sectors, both construction and retail sales reported 8 percent growth during January-February 2001 (compared to January-February 2000). These rates suggest that the strong growth reported for these sectors in 2000 continues. Investment spending was reported up 8 percent during January-February, and growth in after-tax household incomes was estimated at 6 percent. This suggests that Russian consumers will continue to spend. And a US$4.9 billion trade surplus was reported for January, indicating that the Russian economy will continue to benefit from high oil prices and strong growth in dollar exports.

Signs of resilience are apparent in other parts of the economy as well. Russia’s stock markets seem to have recovered from a lackluster year in 2000. After ending last year at 143, the RTS-Interfax index of equity trading spent most of February-March in the 170-180 range. Russia’s leading companies continue to be flush with cash, and the unemployment rate in February remained at 9.6 percent, its lowest level since mid-1996. Moreover, the government is on track to fully service its foreign debt for the first time since 1997. These trends suggest that slower economic growth in Russia could be more likely than a recession (Sotsial’no-Ekonomicheskoye Polozhenie Rossii, February 2001).

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