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Capital crunch sets in as the business cycle takes its toll

Russia took off on high oil prices and the export advantages of a weak rouble. Consumers latched on and the government began institutional reform designed to sustain and broaden growth sectors. So far, so good. But reform – particularly the crucial development of banking and capital markets – is incomplete and a capital-starved economy is hitting capacity ceilings.

Healthy demand has kept consumer industries at the top
of the growth tables

The Russian economy has put in a sparkling performance over the past three years but just how far has the country gone down the road to reform? The fast growth of recent years peaked last summer. As the year ended, though, things went off the boil as the global economy cooled and the slack in Russia's production capacity was taken up.

Has the window of opportunity closed? A close look suggests that enough has been done in the past three years to fuel sustained growth but from now on the pace will depend - for the first time - on president Vladimir Putin's success at pushing through, and implementing, his radical reform programme.

For most of the past three years the lack of a working banking system and the string of liberal legislation that has been passed has had virtually no effect on growth.