Russia » Economics
Author`s name Timothy Bancroft-Hinchey

Russian economy to slow: Prediction or hysteria?

BNP PARIBAS report claims that the Russian economy will enter a slowdown in 2007, albeit a modest one. The report begins with a negative precept, that the economy will slow, but fails to substantiate the claim.

According to BNP PARIBAS, the Russian economy is “to slow modestly”, due to lower oil prices in 2007 which will bring about a deceleration in growth. However the decision by OPEC to reduce production as of November 2006 to stabilise the market would point towards a continuation of the price level of a barrel of crude, once the surplus in the market has dried up. Lower prices would anyway lead to a glut of stock buying to replenish reserves, which in turn would create a tendency for a price increase.

Also, the new price per barrel in 2007 quoted by BNP PARIBAS, 55 to 60 USD, would not be enough to make a serious dent in Russian current account balances, which reached a surplus of 100 bn. USD in 2006.

The report goes on to state that the oil and gas sector makes up for 65 per cent of Russia’s exports, and admits not only that “their share will remain largely stable in future” but also that they will remain “the key drivers of the economy” whose underlying trends are not expected to change.

The BNP PARIBAS report then claims that “price increases will remain at high levels” driven by high money supply and real earnings growth. This is a sign of a successful economy and the growing appreciation of the Rouble would point towards a stability in prices rather than rampant inflation. In the economic world, confidence is the word of the day and of course, for those who are not interested in a strong Russia, painting a negative image of a positive reality is a temptation, but hardly a serious attempt at analysis.

With Russian GDP growth registered at 6.2 per cent in 2006, decreasing to 4.5% in 2007 and rising again to 5% in 2008, with international reserves growing from 182bn. USD in 2005 to 435 bn. USD in 2008 and with the RUR (Rouble) appreciating, it is hard to see how an article from a respectable financial institution such as BNP PARIBAS can merit such a negative title, despite the use of the word “modestly”. Is this not another case of saying the bottle is half empty instead of half full?

How about saying the Russian economy is thriving, Russian business is expanding, Russian investments are growing, Russia’s guarantees to investors are the best ever and Russia’s interests abroad are accumulating at an exponential rate?

Timothy BANCROFT-HINCHEY
PRAVDA.Ru

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