The fall-out from the global financial crisis will sharply reduce real GDP growth in Russia through 2009, with a pick-up expected in 2010. With a reversal in the substantial rise in oil and metal prices, the pattern of terms of trade gains fuelling rapid growth in domestic demand has come to an end. Inflation has risen strongly, but may now have peaked and should decline in 2009-10. Fiscal and current account balances are expected to worsen sharply.

Real GDP growth is set to accelerate in 2007, before moderating over the projection period as oil and metal prices stabilise at their current high levels. Domestic demand will remain strong, but the exceptional rates of investment growth observed in the first half will not be sustained. Fuelled by relaxed monetary conditions and the tightening of the labour market, inflation is set to hit double digits at the end of the year and will, in any case, exceed the central bank target of 8% by a wide margin.

Russia needs to do more to attract foreign direct investment, in the wake of its move in early July to make the rouble fully convertible. This would strengthen its economy and reduce its reliance on oil and gas revenues, OECD experts say.

When Irish government minister Liam Lawlor died tragically in an accident while being chauffeured along Moscow’s Leningrad Shosse in October 2005, local newspapers pointed out that high-speed crashes are common along such boulevards due to the often reckless driving of Muscovites. At a time when the rest of Europe tightens its seatbelts, Russia is only beginning to wake up to its alarming traffic accident statistics.

Your article on Russia sends out some useful signals about the need for reform (“Russia’s economy: Keeping up the good times”, No. 249, May 2005) in areas like energy, banking and so on. However, Russia really is taking off in other business areas, particularly television and film. And why not, given its rich cultural history in music, ballet, theatre and writing?

The Russian economy has now entered its seventh year of expansion, confounding almost everyone with an average real GDP growth of just under 6.8% per annum during 1999-2004. But the economy has come to depend heavily on the performance of a small number of natural resource sectors, above all oil. The trouble is, oil-sector growth has been slowing of late, despite record-high prices. Add to this a number of persistent institutional weaknesses, and doubts start to creep in about Russia’s capacity to sustain high growth over the longer term.

Russia should ease limits on foreign ownership in banking and insurance, domestic transport and energy industries, and improve regulatory transparency to attract more investment, according to a new OECD report.

Russia is on a fast track to reform its transport system, reports Regulatory Reform of Russian Railways. While the Trans-Siberian highway from Moscow to Vladivostok – the longest road in the world at nearly 10,000 kilometres – had its final gaps filled in as of March this year, it will not be completely paved before 2008.

Russia has “already travelled a great part of the road towards economic reform,” thanks in part to co-operation with the OECD, said Alexei Kudrin, Russia’s deputy prime minister and minister of finance, at a meeting of the OECD-Russia Liaison Committee held in Paris on 28 March.

Russia has been taken off the list of countries failing to co-operate in the international fight against money laundering, after carrying out significant reforms of its anti-money laundering system. “This is a great success for Russia and the international community in the fight against money laundering and terrorist financing,” said Jochen Sanio, president of the Financial Action Task Force on money laundering.

Russian Prime Minister Mikhail Kasyanov discussed areas for further co-operation with the OECD during a visit to OECD Secretary-General Donald Johnston in Paris in July. According to Russian press sources, Mr Kasyanov also said his country would be interested in joining the OECD after Russia has become a member of the World Trade Organisation. The OECD’s programme with Russia is the organisation’s largest with a single non-member country and the OECD issued its fourth Economic Survey of the Russian Federation in February 2002.

Russia is enormously rich in natural resources. An estimated one-third of the world’s natural gas reserves remain in Russia’s super-giant fields and smaller adjacent fields, which ensure the availability of future supply. The IEA’s Russia Energy Survey 2002 says that Russia also has a range of opportunities to import gas on commercially attractive terms from Central Asian and Caspian countries through established pipeline networks.

It may seem puzzling to talk of an innovation gap in Russia, for so long a bastion of scientific knowledge. Yet that is precisely what has been developing since the collapse of the Soviet Union. Investment in research and development (R&D) has declined dramatically in the past decade, from just over 2% of GDP in 1990 to little more than 1% in 1999, compared with an OECD average of 2.2%.

OECD Secretary General Donald J. Johnston, at a meeting in Paris with President Putin, urged the Russian authorities to push ahead with their programme of reforms and encouraged them to reap fully the benefits of Russia's long standing co-operation with the OECD.

Abuse of corporate governance remains a common problem in Russia. Investors have often seen their shares diluted by insiders and major share-holders. Companies have seen their assets stripped by various means of transfer pricing. The interests of creditors have not been adequately protected and the mobilisation of capital has been hampered. Yet, good corporate governance is central for raising much-needed investment and stimulating economic activity. The Russian government has made pro-gress in economic reforms but more is needed to promote better governance, encourage dialogue, identify areas for technical assistance and to plan the way ahead.