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Russian economy shrinks

MOSCOW, Feb  2 – The Russian economy contracted 7.9 percent in 2009 in its worst performance for 15 years, as the economic crisis punished the country for failing to implement crucial reforms, statistics showed Monday.

The gross domestic product (GDP) contraction was the most acute in Russia since 1994, when the economy was still grappling with the chaos of the aftermath of the Soviet collapse.

But amid brightening prospects for 2010 the figure was slightly better than predicted by the government, which had been forecasting an even worse contraction of 8.5 percent.

Economic growth in Russia in 2008 amounted to 5.6 percent but the economic crisis was by then already slamming the brakes on several years of robust momentum that had been fuelled by soaring energy prices.

Economists have said that Russia has been paying the price for failing to reform and diversify its hydrocarbon-reliant economy during the good times and is still highly vulnerable to oil price shocks.

The crisis had a particularly severe effect on the industrial sector — most notably Russia\’s embattled largest carmaker Avtovaz — prompting fears of social unrest in the worst hit single factory towns.

Among the sectors hardest hit in 2009 was the construction industry, which contracted 16.4 percent in the period, the statistics office Rosstat said in a statement. The finished goods sector shrank 13.9 percent.

Also badly affected was the hotel and restaurant sector, which shrank 15.4 percent. A quarterly breakdown was not immediately available.

According to a report in the Russian business daily Kommersant on Monday, the average price of a hotel room in Moscow fell 36 percent to 267 dollars last year compared to 2008, the first such decline in years.

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President Dmitry Medvedev has in the last months admitted that Russia suffered worse than other countries from the crisis due to the failure of the authorities to change its economic model over the last years.

He has called for the country to embrace far-reaching economic reform over the next years but analysts have criticised him for being long on rhetoric and short on concrete actions.

In 1994, the economy shrank 12.7 percent from the year earlier.

However the contraction in 2009 was even more sharp than the 5.3 percent dip recorded in 1998, the year of the financial crisis that brought Russia into virtual economic meltdown.

Most economists expect Russia to return to modest growth in 2010 but caution that this will be largely a base effect from the weak performance in 2009 and it will take years for the country to return to pre-crisis growth levels.

The ministry of economic development is forecasting growth of 3.1 percent in 2010, while ratings agencies Standard and Poor\’s and Fitch have both raised their outlooks for Russia to "stable" from "negative."

The weekend saw one of the biggest protests in Russia since the economic crisis started, with 10,000 people turning up for a demonstration in the far western region of Kaliningrad, according to organizers.

According to police, just 6,000 participated.

The initial spark for the opposition rally on Saturday was a local government decision to raise road tax but reports said that economic grievances were also raised at the rally.

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The Vedomosti daily noted that at 10.5 percent, the unemployment rate in the region, is far higher than the Russian average. "The economic situation in the provinces is worse than in the capitals," it added.

The Interfax news agency said Medvedev\’s special envoy for northwestern regions, Ilya Klebanov, travelled to Kaliningrad Monday for meetings in the wake of the protests.

"The envoy has come to understand the causes of such a massive protest action," Interfax quoted a source in the regional parliament as saying.

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