The expansion of the economy in 2011 is expected to be around 4.4 percent.

The increase in the real gross domestic product in the Russian Federation will be 4.7 percent over the course of 2010. The increase will be fueled mostly by exports. Reduced demand around the world will in the medium term reflect negatively on the health of the Russian economy.

The expansion of the economy in 2011 is expected to be around 4.4 percent. The rise in the Russian GDP in the long term will, however, be above the world-wide mean figure. Still, the steadiness of Russia’s economic resurgence may be undermined by the country’s reliance on the hydrocarbons sector.

From a macroeconomic point of view, economic recovery is underway in Russia. The economy came out of the recession in the first quarter of 2010. In the last quarter of 2009, Russia’s gross domestic product was only 3.8 percent lower than in quarter four, 2008. Market performance certainly improved compared to the third quarter of 2009, when the economy shrank a whole 7.7 percent in comparison to the results for the corresponding period in 2008. The rise in Russia’s GDP for 2010 is forecast at 4.7 percent.

The dynamics of the economic rebound in the Russian Federation will be defined by rising exports and a sizeable export surplus. Russia benefited tremendously from revitalized export markets and the rising price on oil already in the fourth quarter of 2009. The trade surplus in the last three months of 2009 reached USD 875.5 billion. Exports increased by 8.2 percent, even while capital expenditures of Russian companies and consumer activity were low. Low prices on hydrocarbons pushed the main indicators of Russia’s economic performance down in the first half of 2009. Thus, in the first half of 2010, growth may even reach 6 percent due to solid export results and the effect of statistical operations.

Consumer activity

The resurgence in exports is eventually expected to trickle down to the other sectors of the economy. At the same time, the path to Russia’s recovery lies directly through foreign trade and world market demand. Even though the fall in domestic consumption and capital outlays by businesses is expected to stop in the first half of 2010, it will take a long while for the two indicators of private economic activity to reach pre-crisis levels. Consumption will increase by roughly 1.5 percent, and fixed capital expenditures by 3.7 percent during the current year. Thus, opportunities for the growth of domestic businesses in 2010 are substantially curtailed. The labor market and the capital market are still burdened by the effects of the 2008 financial crisis.

Data from the first quarter of 2010 show that the labor market did not improve very much. Labor statistics appear to be at odds with the overall economic growth, which exceeded 5 percent in the first quarter. The rate of unemployment did not go down below 8 percent. Overall employment was so low as to evidence a structural shift in the labor market. Even though actual wages have gone up, as has the volume of retail sales, the recovery has been slow in coming.

The banking system was not capable of sustaining credit availability, even though the Russian Central Bank pursued the strategy of concerted monetary easing until May of 2010. Assets growth in the month of January and February was in the red for the first time in more than ten years. Inflation stayed over 5 percent into the first quarter of 2010. Analysts have also noted that the decline in bank assets reached double digit figures.

A large percentage of assets of Russian banks originated as loans. The decrease in the lending portfolio of Russian financial institutions was comparable to asset losses. The number of bad loans issued by some of Russia’s biggest banks persisted to rise in the first quarter of 2010. Figures for non-performing loans are forecast to reach their high point in the first half of 2010. Altogether, the absence of a broad-ranging recovery across all industries and sectors in Russia reflects negatively on the business climate in the country.  

2011

Russia’s expansion will continue in the medium term, and a new downturn is unlikely. Still, the pace of the economic rebound is expected to slow down soon. Forecasters note that the economic growth may be lower in the second half of 2010 than it was in the first half of the year. Exports would not sustain continued expansion, since global fuel consumption went down as a result of the worldwide economic crisis. The demand for petroleum is expected to decrease in 2011 in Europe, China, and the U.S. Although no new recession is on the horizon, growth will not likely speed up again after 2010. In 2010, the expansion of Russia’s economy will likely be 4.4 percent. Growth rates for the period of years from 2012 to 2014 will be 4.5 percent.  

The stabilization of the banking sector in Russia over 2010 and 2011 will prove to be conducive to the recovery in the private sector. At the same time, downward trends in worldwide natural resources use mean that high growth rates seen before the 2008 market collapse may be unattainable.