June 2003
Growth roars on despite rising rouble
At the start of the year the prospect of a rapidly
appreciating rouble and higher than expected inflation were
seen as the biggest dangers facing Russia's economy. Both
have come to pass but the economy continues to roar ahead
regardless. The combination of cheap money from abroad and
rising productivity has offset these dangers and is driving
Russia's impressive growth.
Russia's first strong growth after a 1998 devaluation was
fuelled by the cheap rouble, which lost 75% of its value against
the dollar in a day. Economists worried that an appreciating rouble
would kill the first green shoots of growth as the devaluation
fillip was eaten away. The rouble has already clawed back 80% of
the value against the dollar it lost.
Investment on the
increase
| Inflation versus exchange
rate |
| |
| Source: Aton,
Goskomstat |
|
It appears that rising competition has already led
factories to invest in boosting productivity - investment that is
being facilitated by the cheap money coming from abroad. The
Russian economic development and trade ministry began the year with
a 4.3% GDP growth estimate, but the economy put in 6.6% of growth
(annualized) over the first four months of the year, compared with
3.7% over the same period in 2002.
Al Breach, chief economist with Brunswick UBS Warburg, says:
"There are two things going on at the same time. Emerging markets
as a whole are benefiting from the low interest rates in the US,
and the perceived credit risk in Russia has improved dramatically
thanks to the Kremlin's solid macroeconomic policies and an economy
that has put in five years of 5%-plus growth."
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