Russia's government is predicting a modest 2% GDP growth next year. But many independent economists say the figure could actually be more than double that.

After a steep decline, the Russian economy could be about to stage a recovery of surprising pace, turning the more gloomy expectations on their head. Some independent economists are even forecasting growth next year at above 8%, although they warn the figure looks impressive only against the background of the recent slump. Anton Struchenevsky, Senior Economist at Troika Dialog says recent monthly and quarterly GDP data has showed surprising strength which could flow through.

“September figures look very optimistic and that makes us believe that the slump by the end of the year will stand at around 5-6 % and we’ll see growth in the fourth quarter. But what’s more interesting is that in the first half of next years we might even see an 8% growth.”

The government however is sticking to more conservative forecasts, predicting the economy will grow at 1.6 % in 2010. Analysts put the Government's caution down to its desire to keep state expenditure under control, with a Eurobond issue in the offing, and its first budget deficit in some time already factored in. But Vladimir Tikhomirov, Chief Economist at Uralsib says inflation is another factor that has finally turned in Russia's favour.

“It’s a very protracted low inflation, the zero inflation period that we’ve been experiencing for the last three months, that we never had in the post soviet history…that’s incredible.”

Inflation’s halt over the last 3 months has allowed the central bank to slash interest rates. That is expected to stimulate borrowing and economic activity, as well as taking some of the sting out of the rebounding Rouble for domestic producers. That comes as a rebound in capital flows is expected to see inflows of $15 billion for 4Q.

But the rate cuts come in the face of exceptionally weak consumer demand, with the financial system still weighed down by non performing loans and facing the prospect of another wave of borrowings which needs to be refinanced between now and the end of 1Q 2010.

Analysts put much of Russia’s rosier outlook down to crude prices, with oil again breaching $80/bbl overnight and with the revised Russian budget still based on an assumption of $58/bbl in 2009 rising to $65/bbl in 2010. That has economists considering how big Russia’s Eurobond issue needs to be this week, and providing the government with yet more scope to handle any further fiscal system needs, or stimulus.