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Ruble may ride to Russia's rescue

Russia's latest growth figures show the perils of relying on the oil price to sustain the economy. But growth may soon benefit from the advantages of a floating ruble.

In the first half of 2011, high oil prices pushed up the ruble and together they gave an impression that Russia was standing firm as winds battered the US and euro zone economies.

Energy prices spiked just before the start of the year, as the first of the North African uprisings, in Tunisia, then Egypt, Algeria and Libya, led to fears of a supply shortage.

But there were already signs that growth was throttling back. New export orders, an early warning of problems in global trade, were falling even in the Asian powerhouses.

Slowing orders have translated into slowing economies at the heart of Europe and North America.

Russia's rate of growth in the first half of the year fell short of official forecasts. Growth of 3.7 percent missed the Economic Development Ministry's target of 3.9 percent.

On the negative side, Russia's key trading partners in Europe are decelerating and in the oil sector the International Energy Agency expects prices to fall back this year.

But there is a silver lining. The ruble has declined at just the right time to help offset the slowing economy. Russia's central bank stopped raising interest rates back in May, a decision which now looks inspired. It has withheld from intervention even as the currency lost about 15 percent of its value against the dollar-euro basket over the past month.

This willingness to let the ruble take the strain could pay dividends, Renaissance Capital argues in research. Russia's economy will see a smaller contraction if it allows the ruble to depreciate in the face of a slowing global economy.

As for future growth, Franklin Templeton's Mark Mobius says the euro zone debt crisis has so far had no significant impact on emerging markets.

The US debt crisis is a bigger threat to global growth, he writes in Citywire, while US monetary stimulus is likely to aggravate inflation in all countries.

Emerging economies will do much better, according the International Monetary Fund, growing three times faster than developed nations this year, at 6.6 percent. The Ministry of Economic Development forecasts Russian growth of 4.2 percent.

Russia is trailing the pack. It must seize the initiative and expand its trade with countries away from Europe.


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