While many leading world economies are slip sliding toward recession, Russia is breaking the pattern with over 7% GDP growth for the month of January. Spurred on my internal growth and high energy and other commodity prices, this is not likely to change anytime soon. With oil over 100 dollars a barrel, this is even likely to increase as the price of natural gas usually follows oil’s increase 3-6 months after. Meanwhile, Russia’s fixed investment growth grew over 19% in January to 14.46 billion U.S. dollars.

For St. Petersburg, the new Russian economy isn’t just a vague concept, it is resulting in major economic projects. One of the projects announced in the past day is the expansion of the shipyard ( a 733 million dollar expansion) that fits into Putin’s plan for expansion of strategic industries. Another strategic industry, technology, stands to benefit as construction of a new business park valued in the hundreds of millions has begun, the park will specialize in the housing and promotion of technology companies. Additionally, a new national, diversified telecommunications company is emerging named Effortel attracting big names and big money as it attempts to compete with Vimpelcom and Rostelecom. In this case, as the industry consolidates, businesses and consumers will be able to look forward to bundled services, enhanced services, and perhaps lower prices.

As we predicted would happen, word is Ukraine and the EU are holding high level talks about the establishment of free trade zones within Ukraine. This should be a boon to Ukraine as they would be the low-cost industrial producer among EU countries, having a large infrastructure still from pre-independence days. Their agricultural sector should be a draw as well not to mention access to Russian markets for European firms and Europe for Russian and Ukrainian firms.

Medvedev just gave a speech that outlined his economic plan for the next four years and it sounds a lot like a pro-business candidate from the Republican party in the United States. He has reiterated his stance that the rule of law must be established and enforced in Russian business. To achieve this he mentioned the establishment of an independent judiciary as well as governmental administrative reforms and reductions. Echoing Russian industrial leaders, he called on the lowering of the VAT which will lead to lower collected taxes initially, but an increase in production, greater tax receipts in the long-run, and a lower burden on the population. Energy and transportation are two areas of infrastructure he emphasized that will be getting investment, we’ll be bringing you the companies that stand to benefit and the bonds that will be issued to cover the projects. One of the most immediate things he could achieve and mentioned himself, is the elimination of corporate raids that persist especially in the cities of Moscow and St. Petersburg. This would only encourage private investment to help meet people’s demand for housing and businesses demand for commercial space. Additionally, President Putin mentioned he will be staying on as Prime Minister as long as Russia needs him, so an orderly transfer of power and continuation of stability appears to be inevitable.

Most of the 3rd quarter 2007 economic numbers are in from Russia and other leading economies and Russia stacks up well, except for one category, and that is inflation which ran almost 12% for the month of December. GDP growth was 2-3 times of other G-8 countries with Russia leading in industrial production growth as well.

In a recent speech, President Putin, perhaps speaking for the approaching Medvedev-Putin administration addressed three major issues affecting Russia’s economy. He explicitly stated, taxes must be cut, the government must be trimmed, and businesses must be assisted by the government, not hindered. Of all three lofty goals, the one most immediately achievable would be the cutting of taxes. We should note with a flat tax, Russia already has one of the lower corporate tax rates in the world. Secondly, when it comes to trimming government, in the long-run, the administration will have the control of the Duma, so if there is a will some progress can be made here. Lastly, the most difficult goal of achieving greater transparency in government might prove to be the most difficult. With Medvedev’s legal credentials and political capital, some gradual progress might be made here as well.

Medvedev will soon discuss his plans for the nation’s economy in a planned speech. Don’t expect major announcements, but rather expect a tone to be set and subtle hints to be left as to what direction he plans to take the country. Meanwhile, prices for everything in Russia seem to be on the way up, the one exception being phone service. Rostelecom, the largest telecommunications provider, has announced price breaks of up to 30-50%. This was partly in response to competition, partly in response to the reduction of fees mandated by the government. Additionally, the government has stated it would like to see free incoming calls on people’s mobile phones. In one important area at least, prices are headed down for the Russian consumer and businesses.

This week’s bond falls into the municipal category, specifically we are talking about one of the largest and economically important cities in Russia, the city of Kazan. It is located within the state of Tatarstan, located between Moscow and the Ural Mountains. Industries important to this area include oil, petro-chemical, aviation, and transportation manufacturing to name a few. The bond has a bid/offer of 8.50%/8.42%, matures in 534 days, and is payable in the Ruble. Given the factors affecting the entire Russian economy and factors affecting this city, which include having key industries strategically important to Russia and much of the rest of the world at the moment, we feel this bond promises a safe return at competitive rates.

On the inflation front, the government announced significant increases in pensions, military pay, and public worker salaries in response to rising food and fuel inflation, a cure that in turn could lead to higher inflation by causing prices to rise still further. Of course the government recently asked food producers and retailers to keep a lid on price increases, increased the export duty on grain to keep more at home. Recently Finance Minister Kundrin and Prime Minister Zubkov sparred over differing points of view as to what should be done.