After 2008 economics downfall and 2009 stabilization, 2010 was supposed to be a year of recovery and even at the end of the first half it seemed that all the optimistic forecasts were consistent: GDP grew by 5.2% YoY (against 5.5% forecast by World Bank), CPI 4.4% YoY, industrial production commended optimistic 10.3% growth. For the second half of 2010 government and economists forecasted strong economical growth backed by household consumption growth, FDI inflow and favorable foreign economics environment.
However, as the H2 went on, the low-base 2009 period ended, summer heat and conflagration provoked the inflation that outpaced the 2009 growth rate, resulted that final macro figures of 2010 appeared to be much lower than expected. According to the preliminary estimations of Ministry for economic development, 2010 GDP growth was 3.7%, CPI was 8.8%, that is equal to 2009, industrial production grew by 8.2% (however, only 6.5% in Q4) and unemployment accounted to 7.2%. Ministry of Finance estimated 2010 budget deficit at 3.9% GDP.
All macroeconomics slowdown of H2 2010 went at the presence of favorable oil market conditions: average price of URALS in 2010 accounted to 78.11 USD, that is almost 3 USD higher than the consensus budgeted forecast of the Ministry for Economic Development and Ministry of Finance, considered as optimistic. Yet in 2007, being at the same price level, oil was called as the main driver of Russian economics growth, and the 7-8% GDP growth was considered as “modest”. With the same oil price of 2010 Russian economics is stagnating, meaning that old drivers are no longer consistent in the post-crisis reality. It is vital to find the new long-term drivers that will boost the economics and create reliable and effective tools for money investments. Establishment of these changes are solely dependant on governmental policy, but the government prefer to exist with local projects that work on Russia’s international image (like Skolkovo, 2014 Olympics, 2018 World Cup, Formula 1 Grand Prix in Sochi) rather than to concentrate on institutional changes. Business cannot expect real changes in the near future either. In the scope of upcoming 2011 Parliamental and 2012 Presidential elections the Government will be concerned on additional increase of social expenditures in addition to budgeted projects and increased military expenditures.
At the presence of budget deficit, these measures will require additional financial load to business (tax increase and social payments that business already faced since the beginning of 2011). That will boost the price growth, more expensive credits with subsequent economy slowdown. And although the CPI forecast for 2011 is still 6-7%, in reality at the end of 2011 we may find it close to 10%.
So, the recovery of Russian economics previously expected in 2011-2012 will be postponed.