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Reforms are crucial to recovery

Russia: Fairy tale ending or start of a nightmare?

Real estate: Rebuilding a house of cards

Russia urgently needs to reform its economy if it is to stage a sustainable recovery from the twin ills of the global credit crunch and associated economic slowdown.

That’s the clear message from market participants, many of whom view the recent recovery in Russia’s capital markets as a temporary respite. "The reality on the ground is that growth, industrial output and investment are still declining fast," says Bernie Sucher, head of Merrill Lynch Securities in Russia. The latest available data show that GDP growth has plummeted from 8% in the first half of 2008 to minus 8%, industrial output growth has gone from 10% to minus 12% and investment growth from 7.5% to minus 7.5%.

"The entire political, social and economic system is being tested by the crisis," says Sucher. "People are fighting fires all over the place, but new fires are still breaking out." A recent report by investment bank Renaissance Capital points out: "When oil prices were well above $100 a barrel, with economic growth approaching 10% and real personal income growth exceeding 10%, calls for reform were muted, to say the least.

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