Ben Aris in Moscow -

Kolya is back in Moscow to interview for jobs. A Russian national, he has just graduated from Liverpool University with a degree in business. He also has a long-standing interest in aviation software, and has even sold some of his own developed products to Russian carrier Transaero. So far Kolya has had eight interviews and received eight offers, despite the fact that he just scraped in with a "third" from Liverpool.

Apart from his obvious skill in programming (a sellable skill in any market), Kolya would struggle to get a job in the UK with that degree, even in a boom. God forbid he should go looking in Spain or Portugal right now, where youth unemployment is at 50% and students with a top qualification from Oxbridge would find the going tough.

Russia's economy is booming, even if its businessmen remain glum and nervous about the future thanks to the never-ending Eurozone crisis story. Unemployment is down to a historical low of 5.4% of the working population, which president Vladimir Putin pointed out at the St Petersburg forum in June means all the production capacity is being utilized.

The tight labour market is already sending wages up, which were rising by 14% at the end of the first quarter on an annualized basis. And this has fed through into rising consumer confidence and robust growth for retail borrowing, which was up a whopping 43% in May.

Indeed, the Kremlin released a whole bunch of economic data in early July that shows the economy is in robust health (for the moment). The windfall Reserve Fund was supposed to be emptied by the crisis by the end of 2010, but is now at just under RUB2 trillion ($60bn), whilst National Welfare Fund (used to support social spending) is brimming over at RUB2.8 trillion.

Russia's external debt has risen slightly, to $585bn, which sees it marginally above the country's gross international reserves of $513bn as of the end of June, but this just means that Russia can practically cover its debt dollar-for-dollar in liquid cash. By way of contrast, most Western economies have national debts of 100% of GDP - if not far in excess - these days. Meanwhile, even Russia's drastic capital outflow is finally slowing, and is expected to drop to $9.5bn in the second quarter, following a $43bn outflow in the first quarter.

All this has economists starting to ask if the economy is overheating. Deputy Governor of the Central Bank of Russia Alexsei Ulyukaev says that consumer lending growth above 28% is a red flag for the economy, and Russia is well beyond that point. Analysts worry that the quality of loans is falling, which opens banks up to problems should another external shock emanate from Europe. However, nearly everyone agrees if this does happen the CBR has more than enough cash in reserve to prop the banks up and avoid a systemic financial crisis.

The black spot is in the corporate sector, where companies have already started to de-stock. One of the reasons the 2008 crisis was so painful was that companies were caught carrying high inventory to meet the burgeoning demand of a booming market. With the impact, they basically switched off their machines to save money, and sold that inventory instead.

The result was the economy came to a stand still literally overnight, resulting in contraction of over 7% in GDP in 2009. De-stocking took about six months to complete, after which companies had to turn their machines on again to meet new orders and the economy began to recover. This time round, fearing another (and possibility worse) meltdown in Europe, companies have already started de-stocking before the crisis has even appeared.

"As opposed to 2008, when strong consumption was accompanied by overheated industrial production growth, this year we see producers taking a much more cautious approach. In 2010-2011 the recovery of economic growth was 70% driven by stock building," said Natalia Orlova, chief economist at Alfa Bank. "However, starting in the fourth quarter of 2011, the Russian economy entered a de-stocking process. According to our estimates, in that quarter inventories contributed -0.2% to GDP growth and -0.4% in the first quarter of this year. This was the first sign that producers started to be cautious earlier than expected."

The horns of a dilemma

Russia finds itself in a strange position. Kolya's experience and the robust consumer demand means the economy is getting hot to the point where inflation is starting to rise. Price rises overshot the central bank's target of 4.1% last month, and left it struggling to keep inflation below last year's record low of 6.1%, as a weaker ruble stoked food costs and utility tariffs rose, economists in Moscow said. "What is surprising is how quickly headline inflation has reversed its deceleration," writes Alexander Morozov, chief economist at HSBC Holdings in Moscow. "The central bank's job of keeping inflation within its range is seen as 'mission impossible.'"

On the other hand, the behavior of companies suggests that the economy is slowing down. Industrial production in Russia took a nosedive in March (as it did in much of the rest of the world). This means the CBR should move to bolster confidence and encourage growth.

Put in simple terms the CBR sits on the horns of a dilemma. Should it increase interest rates to curb inflation and cool the economy; or ease monetary policy to encourage more investment and growth. The upshot is that the spread of growth forecasts for 2012 ranges far and wide, from 3% - 5%. When spreads on forecasts get this wide it means the experts are basically clueless about what will happen next.

To be fair, the current strong growth is fragile, particularly given the uncertainty over global oil prices. Current oil prices of around $100 are pumping money into the economy, which is feeding through to consumer demand. However, because of the lack of reforms and investment in Russia, if oil prices fall - and the government is adding a $60 scenario to its budget planning even though it's main assumption is for an average price of $115 for this year - then that would quickly take the wind out of the economy's sails. But that has always been Russia's problem.