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06. October 2009

Recession reports - Russian economic recovery not solid yet

Reuters cited Mr Arkady Dvorkovich a top Kremlin aide as saying Russia economic recovery cannot yet be considered sustainable and there could be a rise in unemployment as well as a plunge in oil and commodities prices this autumn. He said that “It is not a sustainable recovery yet in Russia or globally because it is based on massive government and central bank intervention.”

Officials expect the economy to grow by 3.9% to 4.5% in the second half of 2009 from the H1 when Russia’s GDP shrank by a tenth the worst on record. The fall came in deep contrast with other emerging economies such as China, India or Brazil which continued to grow.

The fall in commodities prices pushed Russia budget into deficit territory for the first time in a decade in 2009 and next year the country wants to borrow as much as USD 20 billion to cover the budget gap of almost USD 100 billion. However, the deficit forecast for 2010 was cut to 6.8% from an originally expected 7.5% on expectations of higher oil prices.

Mr Dvorkovich warned against excess optimism. He said that ‘We are still very cautious about projections over the next few months. A rise in unemployment and a drop in commodities and oil prices are possible in the fall. He added that he was ruling out a possibility of big social unrest in the country.” He also said “I’m doubtful about the likelihood of any massive social unrest. In most cases there are ways to keep the current production going and ways to create new jobs with even small investments.”

Russian jobless rates were unchanged at 6.3 million people or 8.3% in July after hitting a peak of almost 10% earlier this year which prompted officials to disburse billions of rubles of aide to firms across the country.

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