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11 Jan, 2008 04:28

Russia threatened as recession looms in U.S.

The World Economic Forum is warning governments around the world that a U.S. recession is on the cards. Its latest report says economies around the world could be thrown into chaos by the slowdown.

The report says says a full-blown recession in the United States, likely to begin within months, could slow economic growth globallly.

China, India and Russia remain beacons of hope when it comes to growth, but Russia’s economy could slow to just above 6% compared to last year’s 7.5%.

Natalia Orlova of Alfa Bank remains cautiously optimistic, saying growth could edge close to 7% in 2008

“We do not expect investment growth to slow down significantly.  It is likely to be around 20%. So, the overall picture remains quite stable,” Orlova said.

A slowdown in the United States would have little direct effect on the Russian economy. Trade between the two countries was limited to under $US 20 billion in 2007.

But strategist Chris Weafer of Uralsib Corporation says if Europe were to follow the U.S. into recession, that would hurt Russia.

“We know that about 70% of the total value of Russia’s exports are oil, gas and metals. It has an effect on commodity prices rather than general trade. So, the price of oil and then the knock-on effect on gas – that is the decisive factor,” Weafer said.

But Weafer says that a further surge in oil prices could harm the Russian economy.

“Russia already has enough money. In terms of oil prices – extra revenues – that is good but it is not the critical factor. The critical factor will be the negative effect of rising inflation and the rising rouble as [oil prices] go higher,” he said.

It remains to be seen whether emerging markets, such as Russia, could take over the reins of the global economy. The Russian government faces a massive increase in social spending, while infrastructure projects are only just getting off the ground.