Signs of overheating in the Russian economy

Wed, Apr 23 2008, 09:50 GMT
by Lars Rasmussen

Danske Bank A/S


There are good reasons to tighten monetary conditions

  • •How can the Russian authorities address the current situation, and what do we expect? –page 3-4

  • •Economic activity has in fact accelerated amid the global creditcrunch, and real GDP expansion is clearly becoming inflationary, being markedly above its medium term trend –page 5.

  • •Private demand remains the key driver behind the expansion. Retail sales and investments –especially in the construction sector –have proven very strong, and this feeds into price growth -  –page 5-6.•

  • Very high capacity utilisation is fuelling inflationary pressures. Unemployment has fallen rapidly and wage pressures are very high as real wages continue to accelerate - –page 7.

  • •Strong domestic demand combined with rising food and energy prices will bring consumer price inflation to a peak at around 15% y/y in May/June, and producer price inflation to close to 30% y/y -  –page 8.•

  • FX reserves have been boosted by the large C/A surplus, which has set new highs in Q1 08, and the capital account surplus is underpinned by a rise in FDI and PI inflows. This increases the demand for roubles - –page 9-10.

  • •The liquidity situation has turned out less negative in Q2 08 than previously expected by the Russian authorities –- page 11.•

  • The ongoing weakness in USD has reduced real effective appreciation of the rouble despite high inflation and some rouble appreciation against its currency basket - –page 12.

Published on  Wed, Apr 23 2008, 09:56 GMT

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