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ECONOMY & BUSINESS IN 2010
The world financial crisis has had a major impact on the Russian economy, plunging the country into recession in 2008. While Russia is yet to fully recover, many forecasts for 2010 are positive, predicting improvement in line with the global recovery, and as a result of government stimulus measures.
The Russian economy was badly affected by the global economic downturn in 2008 and was hit hard by the fall in the price of oil. Global oil prices fell from a peak of $147 per barrel in July 2008 to $40 per barrel in early 2009. In 2009 Russia’s GDP fell 7.9%, compared to growth of 5.6% in 2008. Industrial output contracted for 12 consecutive months and earnings fell. Banks withheld credit and companies were forced to restructure debt. 2008 saw the end of over a decade of growth in the Russian economy.
Recovery
Russia began to come out of recession in the third quarter of 2009, following a recovery in international commodity markets and government anti-crisis measures, which propped up the national economy and restored consumer demand. Speaking in his annual address to the State Duma in April of 2010, Prime Minister Putin said Russia has moved out of recession. Looking to the future, Putin named macroeconomic stability and balancing the budget as crucial to Russia’s economic development over the next two years. The prime minister said that the government is aiming to cut the budget deficit to 3% of GDP by 2012 and, in the longer term, return to a deficit-free budget that would allow the country to rebuild international reserves.
Anti-crisis measures
The Russian Government and the Central Bank of Russia started implementing anti-crisis measures in September 2008, when the effects of the global economic crisis became pronounced in the Russian economy.
In November 2008 an action plan was approved to minimize the impact of the economic crisis on the Russian population and protect the financial sector. The government focused on certain sectors, such as the construction and automobile industries. It also proposed reducing Russia’s dependence on commodities and improving the business climate to encourage and support small medium enterprises. The Russian government hoped to use the measures to cut the budget deficit, lower inflation and interest rates, stabilize the ruble rate and accelerate development in depressed regions.
A car scrappage scheme also came into force in early 2010 to minimize the damage of the economic crisis on the car industry. The Association of European Businesses estimated that sales of new passenger cars in Russia fell 37% year on year in February 2010.
Speaking in April of 2010, Prime Minister Putin said that anti-crisis support for Russia’s automobile and housing industries will continue.
Official Russian government crisis measures plan 2009
GDP growth 2010
Russia’s GDP is expected to grow in 2010, although estimates of the extent of this growth vary. In December 2009, the Economic Development Ministry predicted the economy would grow 3.1%, based on a global oil price of $65 per barrel. Representatives of the ministry have subsequently said that GDP growth could be higher than estimated, increasing by 4-4.5% this year. In late March of this year, the World Bank predicted growth of 5-5.5% in 2010 and 3.5% in 2011.
Customs Union
From January 1 2010, a customs union came into effect between Russia, Belarus and Kazakhstan. The union plans to form a single economic market by 2012 and has raised tentative plans for a single currency, which could eventually replace the Russian and Belarusian rubles and the Kazakh tenge. Kyrgystan has expressed an interest in joining the union, and in early 2010 Ukraine was also invited to join. New governments in both countries which came to power in early 2010 have yet to make any clear statements on whether they will join. Conditions relating to Ukraine and Kyrgyzstan’s membership of the WTO could hamper any future attempts to join the customs union.
Bilateral Trade
Russia’s European trade is dominated by energy exports. The EU is Russia’s biggest trading partner and Rosstat estimates that Russian-EU trade was worth $236 billion in 2009. EU-Russian relations are governed by the Partnership and Cooperation Agreement (PCA) which regulates political, economic and cultural relations between the EU and Russia, and provides the legal basis for bilateral trade. In July 2008 negotiations began on a new document to replace the PCA and implement an EU-Russian common economic space. Disputes over customs duties intermittently interrupt trading relations between Russia and its partners. Disagreements over customs duties on gas deliveries to Ukraine and oil imports to Belarus were two of the most significant points of tension in the late 2000s. rotectionism hidden behind sanitary and phytosanitary (SPS) measures has also blighted bilateral trade in recent years. Imports to Russia were sabotaged on the grounds of poor hygiene, as in the case of Polish meat which was banned in 2007. For those states which are members of the EU, the bloc’s united stand against these measures has minimized their impact.
China is another major trade partner to Russia. Russian trade representatives in China have estimated that Chinese exports to Russia declined by an estimated 47% last year, while Russian exports to China fell only 11%. China.com reported that trade between the two nations hit a high of $58.8 billion in 2008, dropping 32% during the recession.
Membership of International organizations
Russia has been a member of the International Monetary Fund (IMF) and the World Bank since 1992. It also became a member of the G8 in 1998, hosting its first G8 summit at Strelna, St. Petersburg in July 2006. Russia is also a member of the G20, which has superseded the G8 as the main economic council of the world’s wealthiest nations.
Russia is an accession candidate to the World Trade Organization (WTO) and is the largest economy in the world to remain outside the grouping. Speaking at the World Economic Forum in Davos in late January 2010, Russian Deputy Prime Minister Alexei Kudrin said that Russia risks taking a back seat to new post-crisis rules of world trade if it doesn’t join the WTO.
Russia began accession talks in 1993. First Deputy Prime Minister Igor Shuvalov is responsible for negotiating Russia’s accession and hopes that it will become a member by the end of 2010. At a G20 meeting in April 2009, U.S. President Barack Obama pledged to help Russia join the WTO. Russia is expected to lower customs duties in line with accession targets in the second half of 2010.
Russia earlier announced its intention to join the WTO with fellow customs union members Belarus and Kazakhstan. Shuvalov, said in mid April 2010 however, that these plans may be abandoned.
Key Sectors of the Russian Economy
For more information about the Russian economy broken down by sector, click on the following links.
Sectors: Banking, Oil & Gas, Transport, Telecommunications, IT, Mining and Metals, Utilities, Agriculture and food, luxuries, insurance, real estate, media.
Major companies operating in Russia
Statistics & Indicators
Useful links
Federal State Statistics Service
Russian Stock Exchange (RTS)
Institute for Economies in Transition
Fin-Am
Ministry of Finance of the Russian Federation
World Bank Russian page
Russian government crisis measures plan 2009
Central Bank of Russia
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