State funds may boost Russias growth

Moscow, Feb 2 | Updated: Feb 3 2006, 05:30am hrs
An injection of state funds may lift growth in Russian industry this year but the governments inflation target looks as out of reach as ever, a monthly Reuters survey of economists showed on Thursday.

This year we expect some revival in manufacturing thanks to state investment, said Stanislav Ponomarenko, an economist at Raiffeisen Bank.

The 17 economists surveyed saw industrial output picking up to a median 4.5% in 2006 after it slowed to 4% in 2005, as oil industry investment stagnates under a stifling tax burden.

In the short run, low growth rates in the extraction industry caused by excessive taxes are an economic bottleneck, said Alexei Vorobyov at Maxwell Capital.

The government has set aside cash in a $2.5 billion investment fund to finance major infrastructure projects in 2006 as well as so-called national projects in agriculture, healthcare, education and housing.

Russian auto maker AvtoVaz said on Thursday it would build a new plant with an annual production capacity of 450,000 cars, with state financial backing.

State-owned pipeline monopoly Trasneft also plans to start building a $11.5 billion pipeline to pump oil to China and Japan, while Gazprom wants to develop the huge Arctic Shtokman gas field.

Analysts forecast the rouble will strengthen to 27.85 to the dollar by the end of 2006 from 28.10 at the end of February but did not see its appreciation having a major impact on Russian industry.

Overall economic growth was seen at 6.1 % in 2006, according to a median estimate, down from 6.4 percent in 2005.

Industry output growth in January was seen at a mere 3.5 percent because of the long New Year holiday and a cold spell when many factories stood idle.

High oil prices and growing money supply will make the government inflation target of 8.5% hard to achieve.

Economists saw January inflation at 2.5%, a traditional jump caused by year-end spending by state firms as well as tariff hikes on utilities.

Utilities and transport tariffs hikes boosted January inflation, making it practically impossible for the government to achieve its 2006 target of 8.5% inflation, said Oleg Semeko, an economist at Sberbank.

The survey predicted annual inflation of 10 percent at the end of 2006. Producer prices were expected to rise by 12.3%, down from 13.4% in 2005 and more in line with consumer prices.