Russia's economy returns to growth, but recovery still fragile - EBRD report

© RIA Novosti . Ruslan KrivobokRussia's economy returns to growth, but recovery still fragile
Russia's economy returns to growth, but recovery still fragile  - Sputnik International
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Russia's economy has returned to growth after output contracted 7.9 percent in 2009 but economic recovery is still fragile, the European Bank for Reconstruction and Development said in its Transition Report published on Wednesday.

Russia's economy has returned to growth after output contracted 7.9 percent in 2009 but economic recovery is still fragile, the European Bank for Reconstruction and Development said in its Transition Report published on Wednesday.

"The moderate growth momentum of the first half of 2010 is likely to be sustained, implying a growth of about 4.4 per cent in 2010, strengthening slightly in 2011. The key risk remains the price of oil and other commodities. Policy-makers will face the challenge of balancing the need to sustain the still fragile economic recovery while also achieving fiscal consolidation over the medium term," the bank report said.

The EBRD explained the recovery in the country's economy by higher oil prices, the fiscal stimulus package carried over into 2010 and extended with further pension increases and ample liquidity in the banking system.

At the same time, an eventual depletion of the country's fiscal reserve fund, which had fallen to approximately $125 billion by mid-2010 from $225 billion in early 2009, could make the economy more volatile to swings in commodity prices, the bank added.

The EBRD also noted that Russia's economy still remained largely dependent on hydrocarbon production.

"The economy remains heavily dependent on oil and gas production and suffers from the legacy of a highly energy-intensive industrial structure," the bank said.

The state continues to play a large role in Russian economy, especially in strategic sectors and banking, while considerable differences persist across regions within Russia, it added.

The EBRD also said that the Customs Union, established in November 2009 between Russia, Belarus and Kazakhstan, may introduce additional complications in terms of members' accession to the World Trade Organization.

"This is mainly because customs tariffs and regulations are now set at a supranational rather than national level, although a number of tariff increases introduced by Russia in response to the economic crisis have also been incorporated into the Customs Union's external tariff structure," the bank report said.

On the government's plan to create an international financial center in Moscow, the EBRD said Russia needed more effort to reach this goal.

"Progress in the establishment of Moscow as an international financial center requires a further strengthening of banking sector regulation and supervision, upgrading the legal framework (including pledge law), improving the legal and technical infrastructure for payment systems and clearing and supporting the growth of institutional investors," it said.

MOSCOW, November 17 (RIA Novosti) 

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