Despite record high oil prices, the Russian economy has shown signs of weakening which officials attribute to seasonal trends but that economist say is the start of a slowdown due in part to the Yukos affair. Reacting to lower-than-anticipated industrial production data for September, President Vladimir Putin last week asked his economy minister, German Gref, for "a more thorough analysis, and proposals" for sustaining growth.
The September numbers showed industrial production grew by 3.5 percent in comparison with the same month last year, a rate called "the lowest since December 2002" by the federal statistics agency.
In seasonally-adjusted terms, industrial production growth shrank in September by 0.1 percent against August, the data showed.
"It is still too early to draw any conclusions," Gref responded Wednesday. He noted that every year saw a similar "pause" in growth and said he stood by forecasts of 6.9 percent expansion of gross domestic product for this year.
Robust as that prediction may be, it nonetheless falls short of the 7.5 percent growth target that needs to be met if Russia is to double its GDP by 2010, the goal set for his government by Putin.
A report published last week by the economic development ministry accentuated a substantial curtailment in investment and export volumes for the year and suggested that the 2004 growth target may be revised downwards.
One expert said the Russian economy as a whole would be affected negatively by the government's pursuit of oil major Yukos which has been clobbered with bills for back taxes and penalties already exceeding seven billion dollars.
Authorities have insisted that the Yukos case is a one-off problem that in no way reflects a broader government policy of hounding profitable private corporations, but some say its economic repercussions are more generalised.
"Yukos has a macroeconomic effect - we have been forecasting that for a long time," commented an economist with a major international organisation who spoke on condition he not be named.
Igor Shuvalov, an aide to Putin, acknowledged Thursday that "whatever the outcome, the Yukos affair will be negative for the country because it harms its image."
And Gref himself admitted that the pursuit of Yukos over the past year had altered the investment climate in Russia.
The hydrocarbon sector, which accounts for at least 25 percent of Russia's GDP, has also seen a production slowdown.
Oil production, which shot up 50 percent since 1999, was forecast to rise just eight percent this year and only three percent in each of the next three years.
Given the knock-on effect that oil production has on the rest of the economy, a reduction in that sector alone would explain a more generalised economic slowdown, especially as economic diversification is still lagging.
"The government has failed to take advantage of the very favourable economic conditions of the past few years to push major reforms," said Chris Weafer, an analyst with Alfa Bank.
"And recent evidence suggests that the liberal reformers, so important to the conservative management of the economy during Putin's first term, are losing influence at the cabinet table," he added.
Weafer said Russia, the world's largest oil producer, had one of the most enviable fiscal situations in the world since half the revenue from its oil exports were deposited directly in state coffers.
"To grow, Russian industry has to be competitive," he said. "However, high oil revenues keep the rubbles too strong and encourage domestic inflation at a higher level than the official statistics show."