Russian economic growth and investment accelerated notably in early 2007. For the first time in years, manufacturing posted very impressive growth relative to the same period in 2006, although at least some of the factors supporting manufacturing were temporary in nature. The investment boomhas continued into the second quarter of the year, and 2007 looks to be a year of relatively rapid economic growth for Russia.

Contrary to some expectations, Russia’s balance of payments has strengthened still further due to high capital inflows in the first half of the year. This has created challenges for macroeconomic policy. Money supply growth is reaching record levels, and less of the monetary expansion is being sterilized by accumulation in the Stabilization Fund than in the past. Inflation has remained under control in early 2007, but could very well become problematic in the second half of the year.

The Russian government has approved and submitted to the Duma its first three-year budget, which represents important progress in increasing the horizon of budgetary planning. It has also changed the rules for the management of surplus oil revenues, and will divide the Stabilization Fund into a Reserve Fund for insuring the budget against fluctuations in oil prices and a Fund for Future Generations, which will be invested in longer-term assets. But questions and controversies persist over the investment strategy and potential uses for the Fund for Future Generations.

Investors Guidebook to Russia

Russian Economic Report

Doing Business in Russia 2008

Russian Macroeconomic Indicators