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Russia Pulls the World Economy Along
// The IMF and Russia
According to the International Monetary Fund's revised prognosis released yesterday, growth of the world GDP in 2007 and 2008 will total 5.2 percent. The main reason for the upturn is the unexpectedly high growth rate of the developing countries and Russia. The IMF is now more optimistic about the Russian economy than even the Russian government.
The IMF updated it prognosis for the development of the world economy in 2007 and 2008, originally made in April of this year. The predicted growth rate of the world economy was increased by 0.3 percent to 5.2 percent annually, which is exactly in the middle between the growth rates for 2005 and 2006 (4.9% and 5.5%, respectively). IMF economists suggested at the beginning of the year that the world GDP was slowing down rather rapidly, but the results of the first half of the year convinced them that the situation was better than they thought.
Not only is the rate of economic growth in the U.S. again picking up speed, the euro zone and Japan are “above the trend” as well. Another substantial factor in the growth of the world economy, the IMF says, is the rapid growth of the economies in China, India and Russia. The fourth member of BRIC, Brazil, is growth significantly more slowly. The growth rate of the GDP in China in the first half of the year was 11.5 percent, in Russia 7.8 percent and, according to the latest data, 9.4 percent in India.
One more new tendency has been spotted. Several years ago, the economies of those countries were so small that they had practically no effect on the growth rate of the world economy. In 2006, the total nominal GDP of the three countries was $4.56 trillion, that is, about 10 percent of the world GDP and 35 percent of that of the United States, the world's largest economy. The total GDP by purchasing power parity, taking into consideration the difference in the level of relative prices, was more than 120 percent of the American GDP.
The revision of the prognoses for those countries was the main reason for the revision of the world prognosis. The prognosis for China has been revised upward from 10 to 1.2 percent for 2007 and from 9.5 to 10.5 percent for 2008. The IMF now expects growth of 9 and 8.4 percent this year and next for India (up 0.6 percent from the former prognosis).
In Russia, 7-percent growth is now being predicted for 207 and 6.8-percent for 2008, up 0.6 and 0.9 percent from previously. That is a little lower than many investment banks present in Russia suggest. Goldman Sachs recently reconsidered its prognosis, setting growth of the GDP at 7 percent for 2007 and 8 percent for 2008 and noting that the chances of the prognosis being exceeded were high. That is significantly higher than even the Ministry of Economic Development and Trade's most optimistic scenarios among those depicted in its conception for the country's long-term development published yesterday, which is 6.5 and 6 percent, respectively. International financial organizations, unlike Russian ministries, are beyond the bonds of politics. If their prognoses are seriously at variance with reality, the experts pay for it with their reputations, not their jobs.
The IMF also warns of the growth of risks. The fund's economists are still concerned about the American real estate market, which has already caused volatility on world capital markets and much speculation that the U.S. economy could slow down seriously, even to the point of recession. But the biggest risk is inflation, and not just in Russia, but in China as well, and the whole world. As a result, national central banks will have to impose a stricter monetary and credit policy, raise interest rates, and that can, in turn, slow the world economy and lower oil prices. Thus, a slowing of the world economy could threaten the economy of Russia.
Maxim Shishkin
All the Article in Russian as of July 26, 2007
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