Consumer-oriented Russia doing much better than the EU

A beauty shop in St Petersburg. Russia’s economy grew by 4.4% year-on-year in the first six months of 2012, Rosstat said. | EPA/ANATOLY MALTSEV
The Russian economy doesn’t seem to be doing poorly at the moment, especially if you compare its decent performance with the bad performance of the EU and the Eurozone. Russia’s economy grew by 4.4% year-on-year in the first six months of 2012, the Federal State Statistics Service (Rosstat) reported on 20 August.
Natalya Orlova, chief economist at Russia's Alfa Bank, told New Europe on 20 August from Moscow that Russia is a consumption-driven economy. “Ahead of the presidential election spending grew at a very fast rate – around roughly 30% year-on-year in nominal terms – and this definitely boosted salary growth, consumption growth and also investment growth. So the first quarter was very strong measured by the growth rate,” Orlova said.
Russia's Alfa Bank chief economist noted that Russia’s overall level of growth is following the developed countries and this is because Russian Cabinet is supporting salary growth in the public sector and Russians still prefer to spend.
Asked if Russia is in a better shape than Europe, Orlova admitted that Russia has its own structural problems in the long-run because the country needs to generate investment growth to ensure sustainability of its economic growth. “But at the moment economic growth is relying on the consumption trend. So this is the fundamental issue. But I would say this is not as critical economic problem as the high level of debt in Europe. In the short run having structural problems doesn’t prevent the economy to generate 4% growth based on consumption,” she said.
Rosstat said Russia’s economy expanded by an annualised 4.9% in the first quarter and by 4% in the second quarter of 2012. In January-June 2011, Russia’s GDP grew by 3.7%.
In April Russia’s Economic Development Ministry cut its forecast for the country’s economic growth in 2012 from 3.7% to 3.4%. The ministry said in June it could revise its GDP growth forecast upward by this fall from 3.4% to 3.7-4%.
Russia’s Economic Development Minister Andrei Belousov has previously said Russia’s economic growth in January-June 2012 was facilitated by a fast rise in investment and rapid output expansion in manufacturing.
Meanwhile, oil prices touched three-month highs last week, hovering at around $115 a barrel. Orlova told New Europe that Russia is basically affected through the global oil market by the European crisis. “We also know that oil prices are very sensitive to all the rumours and possibilities of monetary easing and quantitative easing and this is a factor which is boosting commodity prices up. In a way the worse situation in Europe is – economically speaking – the higher are the chances that the European Central Bank and Federal Reserve will have to continue quantitative easing and the higher are the chances that oil prices will remain rather high, at least in the short term. I think that Russia is benefiting from this environment,” Orlova said, adding that Russia is still vulnerable to oil prices.

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