MOSCOW, March 23: Economic growth may slow unless Russia boosts productivity and investment, Economy Minister German Gref told a cabinet meeting on Thursday which ended in a row over natural monopolies’ tariffs. Russia’s gross domestic product grew by 4.1 per cent in January-February in year-on-year terms, Gref said, adding that full-year growth could slow to 5.0 per cent or below in 2007-09.

The New Year slowdown, when industry was hit by severe cold, compared to a full-year GDP figure of 6.4 per cent in 2005 and an Economy Ministry forecast for 2006 of 6.0 per cent.

“The only source of future growth in Russia is an increase in labour productivity,” Gref told ministers, who discussed a three-year economic strategy paper.

Gref said a strong rouble, a slowdown in the oil and gas industry, rising demand for imports and capacity constraints are the key factors behind the economic slowdown.

Central bank Chairman Sergei Ignatyev told the cabinet he expected the rouble to rise by 2.0 per cent in nominal effective terms for the whole of this year.

The rouble is getting stronger amid a massive influx of easy petrodollars from Russia’s booming exports of hydrocarbons, but Gref said energy could not be counted on to drive growth.

“Oil and gas used to be the main engines of Russia’s economy, but they are no longer,” Gref told ministers. “Growth in this industry has fallen to 1.5-2 per cent, and we expect it to stay at this level in the medium term.”

He said monthly inflation would slow to 0.6 per cent in March from 2.4 per cent in January and 1.7 per cent in February.

The mid-term plan envisages annual inflation falling further to 6-7.5 per cent in 2007, 4-5.5 per cent in 2008 and 4-5 per cent in 2009. Year-on-year inflation was 11.2 per cent in February.

Consumer prices spiked at the start of the year as a result of rising fees for household utilities and food prices.

The cabinet aims to keep power tariff rises in line with inflation, while capping gas price rises at 11 per cent in 2006, 8 per cent in 2007 and 7 per cent in 2008.

But providers like state-controlled gas monopoly Gazprom or electricity monopoly RAO UES pushed for bigger rises.

Anatoly Chubais, who heads RAO UES, said the government’s tariff policy was “unprofessional” and blamed rapid growth in the money supply and lax state spending for fuelling inflation.

“If you want to keep inflation in check, you shouldn’t try to fight the consequences; you should deal with the causes,” Chubais told the same government meeting. “To say that tariffs spark high inflation is like medieval palm-reading.”

RAO UES wants electricity prices to rise by 11-13 per cent in 2007, almost double the official inflation target. The government on Thursday approved a strategy document but said it would return to the tariffs issue.

—Reuters