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Economic analysts said Russia's new president will have to tackle emerging
Economic analysts said Russia's new president will have to tackle emerging economic challenges as the country is in danger of exhausting its growth potential.

With nearly all the ballots counted, Kremlin-backed candidate Dmitry Medvedev had just over 70% of Sunday's vote. At a news conference on Monday, Medvedev said his presidency would be a "direct continuation" of policies pursued by Vladimir Putin, who backed him to lead the country.

The Russian economy has changed drastically since 2000, when Putin became president, said an analyst with the FBK consultancy adding the economy needed to be refocused on manufacturing and high technology in the next few years to maintain growth.

"Economic growth in recent years has mainly been driven by oil exports ... and based on institutions formed in the turbulent 1990s like free market prices and private property," Igor Nikolayev, head of analysis at the company, said. "These have worked for several years and could work for some time, but with weaker effect."

The expert praised Medvedev's economic program announced in the run-up to the election as liberal in general, but said some of the measures were unrealistic, including plans to cut the civil service and VAT.

"It is not that we have too many civil servants, but how efficiently they work is what causes concerns," Nikolayev said.

Economists also highlighted inflation, corruption and migration among the challenges facing the new leader.

"Inflation will continue to grow this year, and the new head of state will have to tackle the problem in the first instance, as according to polls, it is the most worrying economic trend among business representatives and ordinary Russians," Nikolayev said.

Inflation in Russia stood at 11.9% in 2007. The government's initial target of 8% for last year was smashed by rising food and oil prices.

Yekaterina Malofeyeva, chief economist for Russia and the post-Soviet CIS at Renaissance Capital investment, said the new president would face a labor shortage of both highly qualified and unskilled workers, caused by the country's persisting demographic crisis, in the next few years and would have to amend migration policies accordingly.

The head of the Economic Expert Group independent think tank, Yevsei Gurvich, proposed improving relationships between the government, business and society to remove mutual "suspicion."

Business should stop being perceived as something dishonest, and authorities should inspire greater trust. The latter should understand that business means new jobs and economic growth in general, the expert said.

Gurvich also highlighted a lack of progress in judicial reform and anti-corruption campaigns.

Malofeyeva of Renaissance Capital, however, said brisk economic growth was currently continuing with reserves accrued and investment attracted in recent years ensuring further growth in 2008. She said the government could encourage growth, if there was a slow down, by cutting the tax burden or raising budget spending.

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