Russian Economic Growth Spurred by Domestic Demand (Update1)
By Alex Nicholson
June 16 (Bloomberg) -- Russia's economy expanded an annual 8.5 percent in the first quarter, higher than economists expected, as consumer demand fueled an investment boom.
The expansion followed 9.5 percent growth in the previous three months, the Moscow-based Federal Statistics Service said on its Web site today. The figure exceeded the 8 percent median forecast of 11 economists surveyed by Bloomberg.
Growth among the so-called BRIC nations of Brazil, Russia, India and China is outpacing the economies of the United States, Japan and the euro region, driven by wage growth, investment and consumer spending. The rapid expansion is also fuelling inflation, which accelerated to 15.1 percent in May, and may be a signal that the economy is overheating, analysts said.
``I don't expect any serious slowing in growth this year,'' Alexander Morozov, chief economist at HSBC Bank in Moscow, said. ``The risks are from rising inflation. The government doesn't have a consensus that the economy is overheating -- this implies that their first priority is sustaining fast growth, while the problem of inflation will be secondary.''
Russian industrial output grew an annual 9.2 percent in April, the most in 9 months, as output of trucks, cars and construction materials surged.
Infrastructure Strained
The pace of the growth is putting a strain on infrastructure, and could be a sign that of overheating, according to Russian Finance Minister Alexei Kudrin, whose arguments were most recently echoed by the World Bank and International Monetary Fund.
``If demand grows by 15 percent in real terms in an economy with potential growth of around 7 percent, you are rapidly using up what spare capacity is available out there and you will see growth of inflationary pressures,'' Poul Thomsen, head of the IMF mission to Russia, said on June 2.
Industrial data suggest that ``the Russian economy is operating at a level that is straining its productive capacity,'' the World Bank said in a report on the same day.
Real wage growth has advanced more than 12 percent every month this year, increasing demand for housing and consumer goods. The government expects the economy, the world's 10th biggest, to expand 7.6 percent this year after growing 8.1 percent in 2007.
Economy Minister Elvira Nabiullina disagreed with that assessment in an interview with Bloomberg television on June 8 saying potential for increasing production to meet growing demand ``doesn't allow us to say in full measure that the economy is overheated.''
Broad Growth
``Many think that growth is based only on rising prices for energy raw materials and high prices for oil,'' she said. ``Our assessments show that the share of growth of the energy sector and high prices for oil are just over a third of our growth rate.''
Demand from companies and consumers spurred import growth of 53 percent in the first quarter, compared with the same period in 2007, according to the Federal Customs Service.
PIK Group, Europe's second-largest real-estate company by market value, will spend more than $3 billion to build a residential complex in St. Petersburg's ``Maritime Facade'' landfill area, the company announced at the St. Petersburg International Economic Forum on June 6-8.
A $10 billion tender for building a highway, known as the Western High-Speed Diameter, was won by billionaire Oleg Deripaska's Basic Element company in a group that includes builders Strabag SE of Austria and France's Bouygues SA.
Russia's construction sector expanded 28.3 percent in the first quarter, the statistics service said, compared with 28.1 percent in the same period last year.
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