Russia's government raised its forecast for economic growth, shares hit a record and the rouble pushed to new seven-year highs against the dollar on Tuesday as a now traditional year-end stock market rally gathered pace.
Inflation figures gave no nasty surprises as consumer prices rose 0.6 percent in November to keep Russia on track to hit the government's 2006 target of 9 percent.
That would be the first time Russia has achieved single-digit inflation since the collapse of the Soviet Union ushered in an era of hyper-inflation and economic turmoil that led to the devaluation and default of 1998.
Now, eight years into an oil-fuelled economic boom, growth shows no signs of flagging as the Economy Ministry raised its forecast of growth this year to 6.8 percent from 6.6 percent.
The World Bank forecast growth higher at 7 percent and sees inflation falling as low as 8.5 percent. "Faster growth sucks money out of circulation," explained the bank's chief Russia economist, John Litwack. Stocks powered into uncharted territory, with the benchmark RTS index rising 1.7 percent to 1,821 points, to extend gains for 2006 to 62 percent.
Since President Vladimir Putin came to power in 2000, Russian stocks have risen 18-fold. But market bulls say the rally won't end here. "The current positive momentum is expected to carry the market strongly into the New Year," said Chris Weafer, chief strategist at Alfa-Bank.
Weafer, who called the year-end rally in October when the RTS was below 1,600 points, set a 2007 target of 2,150 points. Oil stocks rose aggressively, with Russia's No 4 oil firm Surgutneftegas gaining 7 percent on market talk it may be taken over by state-controlled No 2 oil producer Rosneft. Both companies denied any such plans.
Only twice since 1995 have Russian stocks fallen in the last two months of the year - after the Asian crisis of 1997 and when the Kremlin broke up oil major YUKOS in 2004, notes Roland Nash, chief strategist at Renaissance Capital.
The Economy Ministry raised its forecast for economic growth this year despite cutting its price view for Russia's main export earner, Urals crude oil, to $61.2 per barrel on average from $65 previously.
"Our forecast increase has been triggered by faster growth in consumer demand and investment," the ministry said in a statement. It left its growth forecast for 2007 at 6 percent.
Economists were upbeat on the November inflation number, but cautioned that prices could spike again in the New Year if state apparatchiks splurge unspent cash from this year's budget.
"The problem is that the state will have to significantly boost spending in December, creating potential for CPI growth at the beginning of 2007,"said Anton Stroutchenevsky, economist at Troika Dialog in Moscow.
Russia's central bank has this year sought to contain inflation by allowing the rouble to appreciate, and the Economy Ministry's revisions factored in a stronger currency. It raised its forecast for the rouble's average exchange rate this year to 26.4 to the dollar from 26.5, and for next year to 26.3 from 26.5.
But that already looked out of step with reality as the rouble pushed 0.2 percent higher to 26.15 against the weakening greenback, bringing gains for the year to 10 percent.
WORLD BANK SEES RISKS The World Bank sounded a note of caution, however, noting that growth this year has been supported by the booming retail and construction sectors while the manufacturing sector has slowed.
Plans to hike energy costs could slow the economy, as could the Kremlin's drive to assert its authority over Russia's economy and centralise political power in Moscow, the bank said in an annual report on Russia. The state has moved to assert its control over the strategic oil and gas sectors while state-owned arms trader Rosoboronexport took control of troubled car maker AvtoVAZ and the world's largest titanium maker VSMPO-Avisma.
The report said that, while the Kremlin seeks to consolidate more power in its hands ahead of a parliamentary election in 2007 and a 2008 poll to elect a successor to Putin, it risked losing control over the economy. "The most important thing Russia lacks is decentralisation that would support the innovation economy," said Litwack.
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