RUSSIA’S ECONOMIC REVIVAL CONTINUES, DEFYING GLOBAL TRENDS.

Russia’s economic performance in 2001, while well behind the heady pace registered in 2000, has nevertheless surprised most observers. GDP grew by 5.0 percent in the first half of this year, according to a preliminary Goskomstat estimate. Given the worldwide slowdown in economic growth this year and the continued strengthening of the ruble, exports have held up better than had been anticipated. Russian energy exports have continued to expand, as world market energy prices have remained relatively strong.

At the same time, aggregate output growth has received a boost from buoyant domestic demand. Growing aggregate demand and the strengthening currency have caused imports to surge this year, somewhat diminishing the magnitude of Russia’s current account surplus relative to that earned in 2000. However, at mid-year, the current account was still in surplus by US$21.2 billion compared with US$22.8 billion at mid-2000. Thus, the upward pressure on the exchange rate is continuing and the Central Bank of Russia has been actively intervening in the foreign exchange market to limit the real effective appreciation of the currency and the negative impact on Russian exporters.

Despite stiffer competition from imported goods made more affordable by the real effective appreciation of the ruble, Russian consumer goods producers have enjoyed growth in sales to the domestic market on the back of substantial real increases in wages and household incomes this year. Although profits have been squeezed at industrial enterprises, investment expenditures have continued to rise in real terms. Construction activity and some important branches of machine building have benefited. Finally, the interim reports on the ongoing harvest appear to indicate a very successful year for Russian agriculture.

Additionally, the economy seems buoyant this year across most of Russia’s regions. In earlier years, the Moscow region often appeared to be growing far more rapidly than provincial Russia, and the Moscow standard of living is clearly well above that of the smaller cities. However, in the first seven months of this year, industry in Moscow was growing at very near the national average while retail trade increased at a rate 3 percentage points lower in Moscow than the 10-percent growth for Russia as a whole (Goskomstat, October 2001; Central Bank of Russia, September 2001).

RUSSIAN AUTHORITIES MANAGE TO REDUCE INFLATION.