Prime Minister Vladimir Putin was upbeat on Russia's prospects during his annual report to the Duma, calling an end to the crisis, but admitting there was still a long way to go before Russia returns to stable growth.
Russia's underlying economy has recovered faster than what a majority of analysts had hoped this year. The biggest fear that unemployment would rise through until the autumn, has failed to materialise, as the jobless rate in March remained flat at about 8 pc of the working population, following a fall in February.
Indeed, nearly all economic indicators have had surprising results. The Central Bank of Russia (CBR) dismissed its own warnings that the sector could face a second wave of the crisis in April; the CBR chairman, Sergei Ignatyev declared on April 15 that "there will be no second wave of the financial crisis".
As the recovery gathers pace, the feel-good factor is also starting to percolate into the popular consciousness, which is reflected in both, spending and consumer confidence, both of which have risen steadily in recent months. Consumer confidence had risen for three months in a row by the start of April and more importantly, retail sales have also started to increase again.
Consumer spending (not oil prices) have become the main economic driver in recent years. Real incomes were up over 7 pc in 2009; so despite the crisis, the man on the street actually has more roubles in his pocket than ever before. Even so, spending power has been curtailed by the collapse of consumer lending, though this is also showing signs of life after state-owned retail banking giant, Sberbank reported an increase in lending in March for the first time in almost a year.
The economy is creaking back to life as retail sales also rose for the third month in a row, up 2.9 pc over the first three months of the year, the State Statistics Service said Re tail sales were up only 0.9 pc in February.
"For the next few quarters, the downward unemployment trend and signs of a pick-up in bank lending point to stronger domestic demand; also, the external growth outlook is improving," says Anna Zadornova, an economist at Goldman Sachs.
Companies are adding workers because of mounting confidence that demand and profits will continue to improve. Manufacturers cut jobs in March at the slowest pace since September, while employment in service industries stabilized and was unchanged from February, according to purchasing managers' indices published by VTB Capital.
"Domestic demand is finally rebounding," Alexei Moiseyev, a senior economist at Renaissance Capital, wrote in a note on April 12.
Renaissance Capital raised its second-quarter growth outlook to 8.3 pc from 7.9 pc in April on the back of rising domestic demand while predictions for the size of the budget deficit at the end of this year have fallen from 6.8 pc of GDP to a bit less than 2 pc now.
With the economy bouncing back more strongly than expected, Putin in his annual report chose to focus more on a raft of long-delayed social initiatives designed to provide better social support to the population and generally improve people's standard of living.
Putin said that the healthy state finances (Russia remains the third richest country in the world in terms of cash in the bank) allowed the government to move swiftly to avert the worst shocks of the financial crisis without the need for external funding.
Despite a sharp drop in revenues last year, budget spending was not cut, and part of the outlays were redirected towards social spending, Putin said.
He used the speech to announce that the state was going to build 11 state-of-the-art hospital facilities around the country and his comments follow those of Deputy Prime Minister Sergei Ivanov who announced earlier that starting from this year, Russia would "spend more on education than it does on its military," or 4.4 pc of GDP.
Putin also announced that the health insurance contributions of employers would go up at the start of next year by 2 percentage points to 5.1pc.
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