Support The Moscow Times!

OECD Sees Russian Boom-and-Bust Risk

Russia's oil-fueled economic recovery poses a risk of a new boom-and-bust cycle should oil prices and capital inflows continue to increase, the OECD said Wednesday.

The Paris-based Organization for Economic Cooperation and Development raised its growth forecast for Russia to 5.5 percent this year, from a November forecast of 4.9 percent, citing a recovery in oil prices since early 2009.

The economy shrank 7.9 percent in 2009.

"If oil prices and capital inflows continue to increase, avoiding excesses will be the main policy challenge," the OECD said in its latest economic outlook.

The Economic Development Ministry said Wednesday that the economy grew 5.5 percent in April, compared with the same month a year ago. The economy grew 3.5 percent in January to April, compared with the same period last year, it said.

GDP fell a seasonally adjusted 0.2 percent in the first three months of 2010, compared with the fourth quarter of 2009, the ministry said.

The OECD said the main risk for Russia has shifted from relapsing into a recession to another excessive boom as trade and private capital inflows pick up, as in the run-up to the financial crisis.

The economy had growth of more than 6 percent in the years preceding the crisis, in part from massive short-term inflows reaching a record high of $82.3 billion in 2007. But once the global financial crisis began, the funds fled the country — leaving the ruble to lose nearly one-third of its value within a few months in late 2008.

The ruble has recovered from heavy losses since then on the back of strong oil prices, with Urals crude rising 83 percent in 2009. But the currency came under renewed pressure this month as prices for Urals fell close to the key threshold of $65, below which many positive fundamentals — such as the current account surplus — will be erased.

The OECD said the rise in commodity prices and higher corporate earnings have improved the outlook for balancing Russia's budget.

It revised its budget deficit forecast for this year to 5.1 percent of GDP, from an earlier 6 percent for this year. Next year, the deficit should shrink even more, to 2.2 percent, versus previous estimates of 3 percent.

The government aims to have a surplus by 2015, but Finance Minister Alexei Kudrin said this month that if oil prices remained above $70 a barrel, the budget might be balanced sooner.

The government should save windfall revenue and could withdraw demand-boosting measures, such as the incentives for new car purchases, sooner than previously planned, the OECD said.

"Strong fiscal consolidation in the upswing would also help take the pressure off monetary policy, which is likely to be faced with a sharper trade-off between managing capital inflows and bringing down inflation as a number of favorable factors for inflation fade," the OECD said.

(Reuters, Bloomberg)

… we have a small favor to ask. As you may have heard, The Moscow Times, an independent news source for over 30 years, has been unjustly branded as a "foreign agent" by the Russian government. This blatant attempt to silence our voice is a direct assault on the integrity of journalism and the values we hold dear.

We, the journalists of The Moscow Times, refuse to be silenced. Our commitment to providing accurate and unbiased reporting on Russia remains unshaken. But we need your help to continue our critical mission.

Your support, no matter how small, makes a world of difference. If you can, please support us monthly starting from just $2. It's quick to set up, and you can be confident that you're making a significant impact every month by supporting open, independent journalism. Thank you.

Once
Monthly
Annual
Continue
paiment methods
Not ready to support today?
Remind me later.

Read more