Even as the flow-on effects of the deepening euro zone crisis began to affect the EU’s neighbors, Prime Minister Vladimir Putin tried to uplift the mood on Tuesday by declaring that the economic crisis is over in Russia. “We had to exert considerable effort to get out of the hole the crisis pushed us into, but the Russian economy overcame the effects of the crisis by yearend,” Prime Minister Vladimir Putin told the last Cabinet session of the year.

However, a panel of experts, who gathered in Moscow last week for Russia's end-of-the-year economic assessment forum, disagreed. The rate of Russia’s economic growth, they said, was simply too low. The gross domestic product growth in 2011 is unlikely to top four percent, while next year's growth estimates could be anything from 3.7 percent to 4.5 percent, the experts said. To effectively fund all the social programs itemized in the budget, the experts estimated that Russia would require a GDP growth of at least five to 5.5 percent. "In 2011, the economic crisis in Russia seems to be over, but growth rates remain very low at only four to 4.2 percent," said Dmitry Belousov, the head of macroeconomics at the Center for Macroeconomic Analysis and Short-Term Forecasts. “Such modest GDP growth is just not strong enough to maintain budget balance."

One reason for Russia's low economic growth rate is the shortfall in export volumes, which experienced a decline this year, according to the experts. Export volumes have declined almost 200 percent in comparison to the pre-crisis year, Belousov said. "That alone shaved off about 1.5 percentage points from the seven percent GDP growth recorded before the crisis," the economist said. Another crucial factor is the low level of investment in productive sectors of the economy. "If you look at investment-led sectors, we see a significant slowdown in the short- to mid-term, perhaps the lowest level in more than three years," Belousov said.

Final figures through the fourth quarter, which were released by the State Statistics Service, showed that the import volume has also contracted, after a slight growth in the first quarter, the economists said. Personal income growth has slowed down from the 12 to 15 percent in the pre-crisis days to just one to two percent in 2011. At the same time, demand for consumer goods increased by about five percent, while the retail sector registered up to 6.7 percent growth, evidence that Russians continue to live off their incomes. This, coupled with the decline in savings and low interest rates on household deposits, will continue to push consumer demand downward, Belousov said.

Though Russian industrial production growth accelerated in November on the back of stronger manufacturing and electricity generation, "post-crisis recovery is far from complete," said Vladimir Salnikov, the deputy director of the Center for Macroeconomic Analysis and Short-Term Forecasting. "The crisis has spurred differentiation between companies so the situation now varies within different segments of the industry," Salnikov said. "The steel industry is the hardest hit and the first to experience dwindling profits."

Russia’s industrial output rose 3.9 percent in November compared with a year earlier, after a 3.6 percent increase a month ago, according to figures released by the State Statistics Service earlier this month. Manufacturing grew 4.9 percent in November compared with the same period last year, while utilities advanced 3.2 percent, the statistics service said. "As with the economy, one should expect a feeble growth in industrial output compared to the pre-crisis period," Salnikov said. "There is room for growth, but the growth can only be achieved by increasing the efficiency of public administration."

The need to bolster efficiency was also the main thrust of President Dmitry Medvedev’s talk with the government meeting on Tuesday. A wide range of issues remains unresolved, Medvedev told Cabinet ministers. On top of these is the country’s poor investment climate, “which requires fundamental improvement," the president said. "We could not change it yet," Medvedev told Cabinet ministers. And the fight against corruption, on which the president has also staked his reputation, is yet to be won. “Corruption, of course, remains a key issue in state agencies, and we must take the most radical measures to combat it,” Medvedev said.

The Russian president also believes that the year is ending on a positive note. The most significant achievement of the year is Russia's WTO accession, Medvedev said. He said he hopes that being part of the WTO will create conditions for the Russian economy to become more competitive. Medvedev also spoke highly of the Customs Union that Russia formed with Belarus and Kazakhstan this year, and which the Kremlin hopes will usher in a new era in the regional economy.

The growing uncertainty in Europe, complicated by debt and budget problems, remains a major "external" risk to the Russian economy, according to the experts. However, Russia's exports to China are also under threat, especially if China's overheated economy slows down as a result of the prevailing weaknesses in the U.S. economy, said the economists. On the upside, Agvan Mikaelyan, the general director of the FinExpertiza audit and consulting group, said “external conditions were favorable for Russia this year." "High oil prices helped us execute the budget, ensuring a surplus and keeping all financial indices within their limits,” Mikaelyan said. “However, we have not yet taken a single step toward modernization, liberalization, the development of domestic industrial relations and business, or economic diversification.”

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