Economic forecasts rattle Russian markets

Russia’s stockmarkets dropped 3% on Tuesday after a bleak assessment of the economy from finance minister Aleksey Kudrin. Other ministers said rescue measures should be used to encourage long term growth.

Russia’s economy got more than one diagnosis at the Economic Ministry on Tuesday. A sick patient according to Finance Minister Alexey Kudrin. He called government spending a drip for a sick economy that may face a budget deficit of more than 8%. And he called for an honest diagnosis of the economy.

“Right now we are expecting a second wave of problems, including in the financial sector, due to the non-repayment of loans by the real sector of the economy. This is happening because some companies were waiting for and expecting the re-awakening of the market and an increase in demand. In some sectors of the economy, product distribution can take from 6 to 12 months, at the current rate. In this situation companies are left with no money to repay their loans.”

The minister’s straight talking certainly had an effect – the Russian stockmarket fell more than 3%. Elvira Nabiulina – presenting the results of the ministers’ work in 2008 and plans for 2009 – was more optimistic calling to unite anti crisis measures with longer term goals for developing the economy. Business was promised unchanged taxes and government support for innovative technologies, as well as help for import-substitution.  First deputy Prime Minister Igor Shuvalov took up the theme.

“Our anticrisis measures need to fit strategic aims. We should not support individual enterprises as we often do, but we should fit the measures within a new economic model based on domestic demand and innovative technologies.”

Even if ministers succeed in balancing rescue measures with efforts to diversify the economy – they admit 2009 will be a tough year for Russia.