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Wednesday, December 5, 2007

Russia Monthly Trade Balance 2007

Consumer demand and fixed capital formation growth has been very strong in Russia, but net-exports have not (comparatively) been performing so well.In fact in the first half of 2006 net exports contributed minus 1.4 percentage points to GDP growth, while in the first half of 2007 the slowdown in the rate of export increase constituted an an even bigger relative drag, at minus 3.7 percentage points.

So export growth has weakened during 2006/2007 and the emergence this negative contribution of net exports to GDP growth is important, since what it indicates is that while non-oil exports are growing, they are not growing as fast as imports.

So it is the rapid acceleration of imports and Russia's comparatively weak non-energy export performance which have meant that the size of the trade surplus has been steadily declining (and remember that the data here are in "nominal" - money - terms, thus the decline in the real value of the surplus is more significant than it appears).

Booming domestic demand has been fueling import growth, while the real appreciation of the exchange rate and rising labour costs far beyond the levels of productivity increases have been eroding competitiveness in most tradable sectors in manufacturing (outside resources and metals) in so doing raising the question of just how sustainable that Russian trade surplus actually will prove to be in the mid term.

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