On Friday, the budget commission headed by Prime Minister Mikhail Fradkov approved the new forecast of the Ministry of Economic Development for 2000-2008 (see the article on the same page). Officials also revised their estimates for this year. According to the Ministry of Economic Development, the average price of oil will be $39 per barrel of Urals instead of $28, and Russia's GDP will grow by 6.5% (the previous estimate was 5.8%). In 2004, the economy grew by 7.1%, according to Rosstat.

The officials were prompted to raise their forecast by hopes for an expansion of investment and consumer demand, says a source in the Ministry of Economic Development. However, the rate of growth of capital investments is disappointing. In February, investments grew by 7.8%, and in March, according to the consensus estimate of economists from investment banks surveyed by Vedomosti, by 8.4%, i.e. significantly slower than last year (+10.9%). “But we expect further growth [in fixed capital investments] – the decline was already smaller in February,” says the official.

Two weeks ago, the investment bank Brunswick UBS sharply raised its forecast for Russian GDP growth. Economists decided that a barrel of Brent oil in 2005 would cost an average of $41, not $32, and that the Russian economy would accordingly grow by 7%, not 5%. And in 2006, thanks to expensive oil and the strengthening of the ruble, Russian GDP would exceed $1 trillion for the first time and reach $1,081 billion (in 2004 – $583 billion).

To achieve the goal set by the president – doubling GDP in 10 years – the economy must grow at least 7.2% annually. The Ministry of Economic Development will revise the forecast for 2005 at least twice more, says a ministry official. “To double GDP, we need structural reforms, implementation of large investment projects and other measures envisaged by the [medium-term] program,” the official explained. A week ago, Deputy Prime Minister Alexander Zhukov promised that the government would soon approve the program, based on the fact that in 2006–2008 the economy will grow by 7–8% per year.

Not all independent experts share the officials’ optimism. According to Yaroslav Lissovolik from the United Financial Group, the investment dynamics “do not give reason for great optimism”: they are growing approximately twice as slowly as in the first half of 2004. “Such a forecast [6.5%] should be viewed more as a promise,” agrees Alexey Moiseyev from Renaissance Capital (his forecast is +5.2%). However, the government has turned towards big business and this may spur investment activity, he believes. ING Bank “sets” the Russian GDP estimate for 2005 at +6.3–6.4% and does not intend to revise it yet, since “the fundamental factors have not changed,” explains the bank’s chief economist for Russia, Yulia Tseplyaeva. “Optimism” can grow by leaps and bounds with high oil prices and good monthly figures, but as soon as something negative happens, it will turn to gloom,” she says. “Russia has achieved sustainable growth, and whether it will be around 5% or 7% depends on the government’s efforts to liberalize the economy and implement structural reforms.”

Gref has become more optimistic