Economic Growth Prospects in Russia

The year 2013 was characterized by prevalence of negative trends in the Russian economy which began after the 2008-2009 crisis. In reality, no one should actually be surprised by those trends. The phase of intense economic growth in the 2000–2007 period which was justified to a great extent by a favorable situation on global markets of energy carriers ended up with overhearing and later by an economic slump.

In the expert community, there is a wide-spread opinion that the pre-crisis growth model based on motivation of domestic demand has exhausted its potential, so, to achieve high and sustained economic growth rates in Russia in future it will be necessary to ensure a higher quality of the existing factors, such as production capacities, workforce and the aggregate factor productivity. Only in such conditions, one can speak about a search for new sources of growth, such as innovation.

To intensify factors of growth, it is important to take serious measures aimed at restructuring of the economy and shifting of the emphasis fr om the oil and gas sector to other industries. A major factor in the new model of growth should be human capital, however, upgrading of the quality of human capital requires restructuring of the social sphere of the economy, including education, healthcare and pension system. It is to be noted that it is obvious that carrying out of structural reforms should take place on a favorable basis, namely, in a situation wh ere there is high quality of institutes, such as ownership rights, judicial system and etc. A favorable institutional climate is of principal importance in terms of attractiveness of the economy to investors, while a revival of investment demand is an important factor behind economic growth.

At the same time, the beginning of 2013 was marked in our opinion by an optimistic statement by the Ministry of Economic Development that in 2013 the forecast of Russian economic growth amounted to 4% as compared to the previous period. It is to be noted that numerous concerns over stagnation of the Russian economy and its switchover to recession were rejected despite the fact that economic indices, such as dynamics of GDP, investments and industry, budget indices and other changed for the worse. In addition to the above, an emphasis was made on breaking of those negative trends in the mid-year, as well as the results of good harvest in summer.

Despite expectations, in became clear as early as spring that there would be no breaking of the trend. In the meantime, a dispute arose between representatives of the authorities (the Ministry of Economic Development and the Central Bank of Russia) about the effect of measures of the monetary policy and the budget policy on the economic growth rates in Russia at the current stage. At the same time, as was repeatedly underlined by experts when the economy reached the potential of its development (that is, it is on the curve of production capacity) and there is an insufficient amount of production factors to achieve higher rates of growth the measures which are effective in the short-term prospect (it is to be reminded that at that time the issue of whether to increase state expenditures or reduce interest rates was discussed) result not in growth in GDP, but the inflation rate. In other words, the issue of economic growth in Russia is neither in the monetary sphere, nor the budget sphere and as was stated above to promote growth in-depth structural reforms of transport, infrastructure, institutions, the social sphere and other are needed.

However, measures aimed at restructuring of the Russian economy do not go beyond the debates. At the same time, there was no expected breaking of the negative trend in the economy while from summer 2013 international organizations (the IMF, the OECD and the World Bank) started to revise downward their forecasts as regards the 2013 GDP growth rates of Russia which situation was regarded both as a signal of pessimism about the prospects of the Russian economy and another evidence in favor of the fact that previous growth rates (on average 6%-7% in the 2000–2007 period) would not be achieved without serious efforts. Experts' concerns about the recession were confirmed by revision by the Ministry of Economic Development in December 2013 of the forecast of GDP growth rates towards the most pessimistic scenario. Also, the 2013 forecast was revised downward (to 1.4% as compared to 2012). So, the authorities officially recognized that in the foreseeable future the path of development of the Russian economy would not change, nor would there be any modernization of institutions and building up of fundamental factors of economic growth. So, as was stated at the end of the year by Andrei Klepach, Deputy Minister of Economic Development the last year in terms of a search for new factors of economic growth and prevention of recession was "the year of lost opportunities".

Thus, proceeding from the results of 2013 one has only to hope that all the pessimistic forecasts of Russia's economic growth will not be left unnoticed in future by the Russian authorities, but to what extent it remains to be seen.

М.V. Kazakova, PhD (Economics), Head of the Economic Development Department and Deputy Director of the Budget Stability Research Department