20 August 2003 00:49
Tale of remarkably robust economic progress
>From Mr Al Breach.
Sir, Your article on Russia's economy commemorating the fifth
anniversary of the 1998 default, offers some balanced insights on the hurdles
Russia faces in its development. However, it fails to highlight sufficiently
the strength of the growth that Russia is now delivering and, by implication,
casts too sceptical a view on its likely future progress.
This excessive scepticism may be due to an inaccurate or misguided choice of
numbers. While reported investment growth was just 2.6 per cent in 2002, the
correctly measured number was some 9 per cent (the abolition of a tax
exemption on investment accounts for the difference). In the first half of
2003, investment growth has been accelerating further - up 12 per cent on the
first half of 2002, far greater than the 5 per cent forecast quoted.
This all means 2003 is, correctly measured, the fifth successive year of
5-plus per cent real gross domestic product growth (we see 7.5 per cent). As
the investment growth is accompanied by robust growth in bank and bond
credits, rampant productivity growth (labour productivity in industry was up
a startling 14 per cent in the first half of 2003, reflecting
across-the-board corporate restructuring), and (big) twin surpluses in its
fiscal and current account balances, there is every reason to expect the
strong GDP growth will continue into 2004 and beyond.
Furthermore, this GDP growth is, contrary to a sense one gets from your
article, feeding through into better living standards in general. Household
demand is growing at some 8 per cent annually and real levels of consumption
are now some 20 per cent above Soviet levels. Reported GDP may still be lower
than in Soviet days, but that number is hardly relevant for that
militaristic, centrally-planned economy. Russia has plenty of problems, but a
10-year crisis anniversary piece five years hence will likely again be
talking about Russia having "confounded its critics" unless the
scale of the country's current progress is recognised.
Al Breach, Chief Economist, Brunswick UBS, Moscow, Russia
[FTI [The Financial Times]] |
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