#3 - JRL 7227
June 18, 2003
Gref to Putin: GDP Growth Tops 7%
By Alex Nicholson
Economic headline figures are starting to look the way the president likes them.
In televised remarks after a meeting with President Vladimir Putin on Tuesday, Economic Development and Trade Minister German Gref said the economy grew 7.1 percent in the first five months of the year -- just one-tenth of a percent below the average rate needed to double the size of the economy within a decade, a challenge Putin issued to the government last month.
"Russian GDP grew 7.1 percent in the first five months, while industrial output grew 6.7 percent," Gref said.
Investments over the first five months of the year rose 11 percent versus 1.5 percent in the same period last year, he said. "The decline in investments in the country has thus been overcome," Interfax quoted him as saying.
He said average personal incomes grew by an annual rate of 14.5 percent in the period, outpacing a 7.1 percent rise in consumer prices, adding that all industries grew in January-May except agriculture, light industry and electricity. Imports jumped by more than a third while exports increased 20 percent.
But the key figure is overall growth.
The International Monetary Fund on Monday said doubling GDP within a decade would require average annual growth of 7.2 percent, which it called realistic.
After the economy grew 6.6 percent in January-April on the back of high oil prices as a result of the U.S. attack on Iraq, the government raised its forecast for the year to 4.6 percent from an initial range of 3.5 percent to 4.4 percent.
Many leading economists and institutions have also revised their forecasts upward, and some believe Gref's ministry is still too pessimistic.
"This reflects exactly the period around the Iraq war where you had a higher oil price, which seamlessly translates into a higher growth rate. But this would certainly indicate that the economic ministry has to revise its forecast," said Christopher R?hl, the World Bank's chief economist for Russia. R?hl, who is forecasting growth of 5.5 percent this year, said he expects world oil prices to drop and the pace of economic growth to slow accordingly.
Peter Westin of Aton says he is sticking to a forecast for the year of 5.7 percent, which is based on an average oil price of $24.5 per barrel of Russia's benchmark Urals crude. So far this year oil has averaged just above $27.
"It's higher than I would have expected. There seems to be an extremely strong momentum at this point ... though there's something of a base effect to these numbers," Westin said, referring to lower growth last year.
Doubters say Gref's numbers are suspiciously on-target in light of the president's address.
"Everyone produces high growth rates now -- especially the Economic Trade and Development Ministry -- because they have this task of doubling GDP," said one economist who preferred to remain anonymous. "It's kind of silly. And still there are no underlying GDP figures available from the State Statistics Committee."
A spokeswoman for the Economic Trade and Development Ministry said the ministry's medium-term social and economic growth plan had been amended following Putin's challenge and could be accessed from the ministry web site at www.economy.gov.ru.
As for expected growth, the spokeswoman said the ministry's forecast would remain at 4.6 percent. "At the moment we're not going to change anything, but perhaps later."