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A Putin Boom?

MOSCOW: Vladimir Putin has more to celebrate than his election as Russia’s president in his own right. After a decade of horrific turmoil, Russia’s economy is at last turning around. Recently, the Moscow brokers Brunswick Warburg predicted that Russia’s GDP will surge 5% this year. That growth should give President Putin - if he is patient and persistent - leeway to tackle the longer term reforms his country needs if it is to become the powerful state he seeks it to be.

Until now, a broad consensus forecast 1-2% growth in Russia this year. The reason behind that uninspiring consensus is simple: people - economists and investors alike - have become so pessimistic about Russia that they no longer can see positive facts. The conventional wisdom is that Russian industrial growth is only an effect of high oil prices and import substitution, facilitated by a great devaluation of the ruble.

Considering that Russia’s growth was 3.2% last year, a staggering 8.8% in the last quarter, this makes little sense. Growth, indeed, is accelerating. Dynamism like this does not stop without a major shock. Industrial growth was 8.1% last year, and has accelerated since, to 14% in February.

Oil and gas have not led the recovery; indeed, they stagnated last year. Major industries with 16-22% growth were chemicals, light manufacturing, pulp and paper, and machine building; that is, intermediary goods and simple manufacturing, exactly the kind of industries economists like to see expanding at this stage of a recovery. Within each industry, the best enterprises dash ahead, as should be the case when real restructuring is taking place.