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Will Russia let growth slip?

The economy is booming, but Russia’s stellar growth rates of the past three years are already starting to slow. The impact of the cheap rouble and high international oil prices are beginning to wear off. President Putin must embark on painstaking structural reforms or the boom could peter out. But that means taking on powerful entrenched interests.

       
Direct investors, such as Swedish furniture
chain IKEA, are introducing Russians to new
retail experiences

In the past few years Russia has been riding favourable global macroeconomic conditions. From now on, though, the going will be tougher. Growth will depend on high levels of investments and dogged institutional and legal reform. It will be a long haul.


"It is not easy to go back to 1999 where most of the growth was import substitution," says Oleg Vyugin, economic adviser to the government and a former deputy finance minister. "Most of the easy things have been done and the spare factory capacity taken up. To squeeze more growth out of the economy will take big investment projects. A lot depends on the attitude of the big companies - if they are willing to take this risk."


After two years of record high commodity prices, Russia's big corporations - mostly engaged in the oil and metals businesses - do have money to invest lavishly.



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