The recovery becomes more broad-based
Overview:
After a sharp contraction last year, the Russian economy posted solid economic growth in H1 2010. The poor grain harvest has severely impacted agricultural production and dented exports but will not derail the economic recovery. This is becoming more broad-based, relying now not just on a rebound in exports and industrial production but seeing a recovery in private consumption and fixed investment too. Inflation has started to pick up due to higher food prices but will also be boosted by rising domestic demand and a weaker ruble. Hence, the central bank will have to consider hiking rates even though it has not yet moved to an Inflation Targeting regime. Fiscal policy will be tightened slowly and financing of the deficit is moving away from the Reserve Fund to Eurobond issuance and privatization receipts.