AmCham report: Russian GDP sees positive trends in second quarter

While Russia is yet to return to its pre-crisis level of economic growth, the American Chamber of Commerce in Russia (AmCham) reported positive trends in Russian GDP in the second quarter. Trends such as slowed inflation, increased levels of exports and government efforts to improve the investment climate were noted as helping Russia on its way to economic recovery.

AmCham’s quarterly review of the Russian economy, released in early August, concluded that most major indicators of economic development in Russia showed an increase in the second quarter of 2010 compared with comparable 2009 data, noting however that last year’s levels were particularly low in the wake of the financial crisis.

For example, according to preliminary estimates by the Ministry of Economic Development, Russian GDP grew in the second quarter by 5.4 percent compared with the same period last year.

This increase in GDP allowed for a rise in household consumption, thereby providing an impetus for acceleration in the trade and services sectors.

How is the market faring?

As for the investment climate, the report noted that the Russian market benefited by the improvement in the rouble’s liquidity and overall increased capital flows to emerging markets. However, the report made clear that the current level of investment is still weak, especially following Greece’s economic woes and the subsequent downgrade of the euro. Furthermore, it was noted that compared to other leading stock markets, Russia's losses this year were similar to those of Japan and Brazil. Russia performed better than China and France, while falling behind India, the U.S. and Germany.

What’s the government doing?

The report also emphasised efforts by the Russian government to improve the country’s investment climate, noting that the current administration must go beyond cosmetic changes in the regulatory environment and instead bring about deep systemic changes to modernize public institutions. Specifically, the piece noted initiatives to modernize the economy and stimulate foreign direct investment that President Medvedev announced at the St. Petersburg International Economic Forum this past June. These initiatives include:

abolishing the capital gains tax for long-term FDI;

simplifying visa requirements for foreign specialists wanting to work in Russia;

establishing a special investment fund to co-finance strategic investment projects; and

reducing the number of enterprises in Russia that are considered strategic in order to make them more efficient and decrease the government’s role in the economy.

The piece concluded that such changes are important for investors looking to enter Russia and, if implemented successfully, could positively affect the development of the Russian economy.