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Russian economy performs better than expected

April 01, 2015, 19:08 UTC+3 Alexandrova Lyudmila
© Artyom Geodakyan/TASS

MOSCOW, April 1. /TASS/. Despite a recession, the Russian economy demonstrated better results in the first quarter of this year than the authorities had expected in late 2014 and early 2015.

The Russian economy made a weak start to 2015 with falling industrial production, investment, real wages and inflation close to 17% but experts say it could have been worse. At the same time, some of them warn that the crisis peak still lies ahead.

"Our expectations at the end of 2014 on the first half of 2015 were tougher and we expected negative developments on a larger scale," First Deputy Prime Minister Igor Shuvalov said at the start of this week.

The third quarter may become the last quarter of the recession in the Russian economy in the Finance Ministry’s estimates, Deputy Finance Minister Maxim Oreshkin said.

With an oil price of around $50 per barrel, Russia’s GDP will demonstrate a growth of up to 2.5% a year in 2016-2017 while annual inflation in 2015 will stay at 16-17% until the middle of the year, after which it will start to slow down, the Finance Ministry official said.

Meanwhile, Deputy Finance Minister Alexey Moiseyev has said the Russian government has stopped the ruble’s weakening and the national currency will only keep strengthening.

Economic developments in Russia are so far better than they could be, said Vladislav Ginko, a lecturer at the Russian Presidential Academy of the National Economy and Public Administration (RANEPA).

"The pessimistic scenario has not materialized while even the worst-case scenario did not envisage such a contraction in GDP as was in 2009 when it shrank by 7.9%," the expert told TASS.

"The population’s confidence in the authorities and the consolidation of society have helped stop panic sentiments over the ruble exchange rate quickly enough," he said.

The factor of confidence in the authorities is important to overcome the crisis, the expert said.

In particular, depositors could have withdrawn larger amounts of money from banks, which would have crippled the banking system, he added.

"On the one hand, there are signs of stabilization but largely on the foreign exchange market where the ruble exchange rate has stabilized," Director of the Development Center Institute at the Higher School of Economics Natalia Akindinova said.

"Inflationary processes have helped block a part of last year’s negative developments and inflation has started to slow down," she said.

But it can’t be said that the situation in the real sector of the Russian economy has stabilized, the expert said.

Specifically, real wages fell by 10% in February 2015 year on year. Demand indicators also declined. In particular, trade decreased by 10% High uncertainty remains in the investment sector, with capital outflow hitting $25 billion in January-February this year. Domestic investments are not demonstrating any recovery either, the expert said.

Head of the Macroeconomics and Finance Research Division at the Gaidar Economic Policy Institute Sergey Drobyshevsky does not share optimism either.

"So far, it is early to say that the situation is favorable," he told TASS. "The February indicators were worse than in January and in March we expect even worse performance. In general, there are no noticeable improvements," he said.

Experts at the Gaidar Economic Policy Institute forecast that the crisis in Russia will peak in the second-third quarters of this year or at the turn of 2015 and 2016, he said.

"A decline is not seen so far but this does not mean that the crisis is over. Additional factors may emerge as this crisis is unique for Russia," the expert said.

Meanwhile, experts’ more optimistic estimates were confirmed on Wednesday by Economic Development Minister Alexey Ulyukayev at a meeting between government members and President Vladimir Putin in the presidential residence outside Moscow.

Ulyukayev said the situation in the Russian economy was now better than forecast at the end of last year.

The minister said the federal budget stipulated the allocation of 300 billion rubles ($5 billion) for support of the real sector of the Russian economy.

"In this work, we have focused on risk zones — transport machine-building, car-making, rail car manufacturing, the production of the railway rolling stock, the construction industry and air carriages," the economy minister said.

At the same time, Ulyukayev said "these and also other sectors of the national economy demonstrate dynamics better than we and investment analysts expected back at the end of last year."

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