Macroeconomics and Finance: on the oil wings
In January, oil prices again rose for the first time since the crisis and have exceeded USD 100 per 
barrel (for the last time oil prices were at that level in February 2008). Therefore, the rise in prices 
is continued for six consecutive months and reached about 30% growth as compared with summer 
prices. This circumstance affected the main trends of macroeconomic dynamics in late 2010 and 
early 2011: improvement of the trade balance, stabilization of the dynamics of foreign currency and 
gold reserves and RUR strengthening.

After the failure in August, the trade surplus at the end of the year consistently exceeded the 
indicator of 10 billion dollars. After stagnating in November, in December the growth in imports, 
according to the FCS tentative assessments (for foreign countries), was accelerated again to 11% 
as compared with the previous month. However, rising oil prices compensate for this acceleration. 
Reserves of the Central Bank in January, for the first time since the second half of October 2010, 
have ceased to decline. On January 21 they amounted to 482 billion against 476 billion on December 
24. We would like to remind, that from the third week of October until December 24 the reserves have
decreased by 27.6 billion (5.5%). Throughout this period, an intense outflow of capital was recorded 
in Russia, which exceeded 38 billion dollars for the year. Moreover, three quarters of this outflow 
occurred in September - December 2010.

In December 2010 the RUR real effective exchange rate rose by 3.7%. As a result of 2010, the 
ruble strengthening in real terms in the two-currency basket has reached 7.1%, as compared with 
the weakening in 2009 to 3.9%. In January, this trend was continued. The value of the two-currency 
basket in January continued to decrease: on January 25, it amounted to 34.67 rubles. (-0.7% as 
compared with the end of December).

As expected, the trend towards higher inflation acceleration has spilled over to the new year. 
However, the rate of inflation in January - 102.4% - was higher than even the pessimistic forecasts 
of Ministry of Economic Development (2,1-2,3%). The largest contribution to the rise in prices was 
made by seasonal factors - increases in tariffs for water supply and heating, common to the beginning 
of the year, and the rising prices for fruit and vegetables. Contribution to the jump in prices has 
been also made by increased excise taxes for gasoline from January 1, 2011. As a result, the official 
forecast of annual inflation (at 7.6%) in 2011 ceased to play any role. Inflation risks will remain 
high during the first half of 2011.

Against this background, the Bank of Russia has still left at the same level the interest rates on 
operations to provide liquidity, but increased the deposit rates and reserve requirements. However, 
such tightening of monetary policy is not enough to slow down inflation, which, according to our 
estimates, in 2011 may well be higher than in 2010, while the Bank of Russia opts for the purposes 
of stimulating the economy, but if prices growth in February remain high enough, it will have to 
adjust its policy.

In December, the excessive reserves of commercial banks increased significantly: as per the month 
result, they have reached RUR 2.2168 bn, which is 1.4 times more than in November. The growth 
of reserves was caused primarily by more than fourfold increase in bank deposits with the Bank of 
Russia, as well as more than 1.5 -fold growth of banks’ correspondent accounts with the Central Bank.

Such dynamics is explained by a seasonal increase in budgetary expenditure at the end of the year.

 Real Sector
On January 31, Rosstat has disclosed the estimates as of GDP growth rate in 2010, which 
amounted to 4%. Such assessment indicates a significant acceleration of economic growth in late 
2010. Basing on previous quarterly growth (I quarter – 3.1% versus the same period of 2009, in II 
quarter – 5.2%, in III quarter – 2.7%), the growth in the IV quarter should reach at least 5% of the 
IV quarter of previous year. Moreover, the economy should grow relative to the previous quarter at a 
rate significantly higher than the rate typical for the whole recovery period (from III quarter 2009).

It looks amazing when you consider that, according to Federal State Statistics Service, the pace 
of growth in major industries in the IV quarter were significantly lower than in the most successful 
quarter II. Thus, the volume of industrial production increased in the IV quarter by 6.5%, against  
10.9% in the II quarter, production grew by 2% in the IV quarter against 4.8% in the II quarter, 
manufacturing activity  - by 9.9% versus 16.3%, transport freight turnover - by 2.4% against 13%. 
Trade turnover has also showed a slowdown in the IV quarter (4.1% versus 5.3% in the II quarter 
and 5.9% in the quarter III ). Among the clearly positive trends of the year end, it should be noted a 
significant acceleration in investment growth in fixed assets (up to 12.8% in the IV quarter against 
7.2% in the previous quarter and negative growth in the early years), as well as increase the amount 
of work in the construction of 5 6%. Thus, we can say that construction is the last area in which the 
economy has recovered from recession and demonstrates the positive (and accelerating) growth for 
two consecutive quarters. However, investment and construction are usually delayed in its dynamics 
in relation to other areas of the economy.

 Another disturbing trend in 2010 was the actual restoration of import share in cash resources of 
retail trade. In 2007-2008 the proportion was 47% in 2009, at the background of the crisis, fell to 
the level of 39-41%, but in the III quarter of 2010 reached the pre-crisis value. This indicates that 
the  recovery  resource in domestic demand that could have a significant impact on the growth of 
domestic production, is close to exhaustion.

The Rosstat index of business confidence demonstrated in January 2011 a positive trend, which, 
however, was regarded by the  Rosstat as seasonal factor (normal for January increased optimism 
of manufacturers). Business surveys of the Gaidar Institute demonstrated a sustained situation 
typical of recent months: the relative satisfaction with the present situation and the considerable 
uncertainty in the future. Purified from seasonal demand growth in December, showed growth, with 
the satisfaction of demand remained the same. Purified from seasonal factors, the dynamics of the 
actual demonstrate the output index for the next crisis peak. Against this background, the companies 
refuse from the plans to reduce staff. However, a more subtle indicator of the forecast shows the 
continued pessimism in the evaluation of the future. The negative balance of answers regarding the 
stock of finished products shows that the company definitely does not want to replenish their stocks 
of finished products per new customer and prefer to have it made production much less than usual 
for the month volume.

The surveys demonstrate that companies transferred to the tactics of raising product prices in the 
last months of the last year, do not intend to abandon it. The industry is planning significant price 
growth during the first months of the new year, probably even to the detriment of sales. But it seems, 
that increasing tax burden does not leave any other choice to the companies. Such a drastic revision 
of the price plans were not in the Russian industry since September 1998.