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I was at the Adam Smith "Russian outlook 2011-2014" on March 1, where all the talk was about innovation and education in Russia.

The room was filled largely by executives of fast moving consumer good (FMCG) and the mood was pretty optimistic in sharp contrast with that in the rest of the world - but then everything looks optimistic compared to this time a year ago. On balance, Russia is clearly out of the hole it fell into in February 2009, but the recovery process, while going forward, is neither strong nor smooth.

This conference was run by Daniel Thorniley, who used to run the Economist Intelligence Unit's (EIU) emerging European operations (and was my boss in the 1990s) and was a pre-eminent consultant for FMCG companies in the region. He broke away from the EIU several years ago to set up his own shop, DT Global Business Consulting, and consults for most of the multinationals working in Russia.

Top down, Russia looks in great shape. GDP growth is coming back nicely (as widely expected). The budget deficit will come in this year at under 2% (and possibly under 1%), which is way ahead of the government's expectation a year ago. Total foreign investment is almost back to pre-crisis levels, says investment bank Uralsib, coming in at $114.7bn in 2010, up 40% from the year earlier. And the government officially announced in late February that it was going to start siphoning off tax revenues into the Reserve Fund again, as well as cutting some RUB300bn-400bn from its RUB1.5 trillion ($50bn) borrowing plans this year; the expectation had been that the Reserve Fund would run dry this year with domestic and foreign borrowing plugging the state's spending gap.

But bottom up, things are much less rosy. The problem is that domestic demand is sputtering and Russia's economy can't grow without this, as consumption already accounts for just over half of GDP. The statistics from January point to a sharp slowdown in economic activity as domestic demand was hit by the sharp rise in inflation, inspired by the double whammy of rising commodity prices and soaring food costs. The effect was to depress real disposable incomes - down 5.5% when analysts were looking for an increase of 3.5% - which pulled down the other consumer-related numbers and even led to a slight increase in unemployment.

These results have unsettled commentators, but it could well be that these are just the "funny numbers" that is normally associated with January - a month most Russians take off. But Thorniley, who spends all his waking hours talking to the likes of the senior management at PepsiCo and French supermarket chain Auchan, says the FMCGs are reporting the same thing. "These companies had stellar results in the last months of last year," says Thorniley, "but then sales dropped off a cliff at the start of this year. Clearly the demand is not stable."

Back to 2000

These problems are probably only temporary. The unrest in North Africa will almost certainly keep oil prices high (the events in Libya has caused a little bit more than a 1m-barrel-a-day oil supply shock, only the eighth worst on record), which will only improve Russia's macro situation further. But high oil prices are not going to solve the dearth in demand.

Ultimately, the current situation is reminiscent of the start of 2000. Then the gloom caused by the 1998 ruble crisis still hung over Russia, but people had cash in their pockets rather than the IOUs that companies used in lieu of wages for much of the 1990s with its "virtual economy" and started to shop. By the end of that year, the economy was clearly booming.

This time, Russia will start from a much higher base, but like then it will take three to four years for the average person get over the very nasty shock that the crisis brought. And hopefully as the last big crisis is still so fresh in everyone's memory, it could take a little less time this time round, which means sentiment could change fast this year.

The early signs are already there. Bank lending has already begun to pick up with retail loans leading the way. Car purchases on credit are also already back to pre-crisis levels, according to Rusfinance. Investments in Russian real estate are approaching pre-crisis levels, up over 50% in 2010, according to VTB Capital, and mortgage financed sales have been doubling each month since last summer.

All of this is indicative of a building recovery, but no one is expecting the economy to go back to the boom it enjoyed in 2008 and most companies are rethinking their strategy for lower, more sustainable growth, which is probably a good thing in the long run. "The challenge in Russia is for companies to move away from a good profit model to a model which gives strong top-line growth. This is still a challenge in Russia and globally," says Thorniley.

However, whatever the economists say, Russian companies seem to have a lot more faith in the Russian consumer than most analysts. A survey conducted by the Thorniley's DT Global Business Consulting last year found:

• 70% of pharmaceutical companies said they would return to 2006-07 levels of business in 2010;

• 65% of food companies said the same, and 25% reported that this level would be regained in the first half of 2011;

• 65% of consumer product companies see recovery to this level in late 2010, while the remainder expect this to happen in early 2011. The laggards were in consumer electronics;

• 50% of industrial companies anticipate a late-2010 recovery, but 45% see this happening in 2011 and 5% expect to wait until early 2012;

• Some 40% of IT companies look for a similar recovery in late 2010, 45% in 2011 and 20% expect to wait until 2012;

• Most companies in the automotive sector foresee a full recovery starting in the second half of 2011; others are looking at 2012;

• Construction and real estate will come back from deep lows. But construction companies expect a sustainable recovery to start meaningfully in the second half of 2011 and into 2012;

• The banking sector is recovering as assets and deposits improve and profits are already starting to turn positive and expect to lending to resume in 2011.

Now it is over to the Russian government. It successfully contained the worst of the crisis with massive spending and has produced a solid macro base on which to build. But to really boom and restore confidence the state needs to deliver on its reform promises. Still, even if it's business as usual, it's already clear it will be a good, if bumpy, year for Russian companies.