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3 Sep, 2009 16:41

Economic growth moves back onto the outlook menu

With signs the Russian economy is emerging from crisis Russia's Finance Minister says the worst is over and it's now time to stop stimulus spending. But economists believe that could be premature.

France, Germany and Japan all reported moving out of recession in August. Russia, which has been the hardest hit of the emerging markets, also appears close to emerging from the worst.

GDP rose half percent in July on the previous month. The banking sector saw a rise in capital and assets and in August the service sector also grew for the first time in 11 months. Jean-Michel Six, Chief European Economist at Standard& Poor’s sees positive growth in the outlook.

“We are starting to see more encouraging signs that the recovery in the Russian economy could be near and that at least the worst is behind us. After an overall decline in GDP in 2008 of about 8%, which is a very substantial decline, we expect the Russian economy to recover somewhat by about 2% positive growth in 2010.”

Russia’s bailout package already totaled $200 billion. Despite that, there is little in the way of good news for manufacturing – a pillar of the economy. But Finance Minister Aleksey Kudrin believes it’s enough and has called for no extra public spending.

“Public spending is now sufficient, and it cannot be increased. Any further public spending growth would increase the budget deficit and would have to be funded by reserves. And this is equal to printing money. This could fuel inflation and interest rates would rise.”

With the outlook for oil prices better than expected, Vladimir Tikhomirov, Chief Economist Uralsib says the government is still sticking to a cautious and conservative strategy.

“We forecast a budget deficit of 2% of GDP for the next year – that’s substantially lower than the 7% included in the budget. I also expect GDP to grow 4% – while the government anticipates only 1.6%.”

Not everyone is taking recovery for granted. The British finance minister has told the treasury as well as his American counterpart that there’s still a long way to go and it’s too early to cut stimulus spending. The prospect of a double-dip recession has not yet receded.