Low GDP growth shows economy’s incapacity to respond to a higher demand

GDP low growth rates in 2013 were determined by the following factors.

1. Final consumption expenditure’s growth retardation. Consumption expenditure of households’ growth rate slowed down to 4.7%, the lowest value in 2009. Final consumption expenditures of state administration bodies dropped 0.1%. As a result, total final consumption expenditures’ growth rate slowed down to 3.4%. This component contributed 2.4 p.p. to the final growth of GDP.
2. The rest of the GDP elements – gross accumulation and net export had an adverse impact on the GDP dynamics. Gross accumulation in 2013 contracted 3.4% including a 0.3% decline in gross fixed capital accumulation. The dynamics of stocks of tangible current assets made a major contribution to the gross capital accumulation. The Rosstat publishes no values of actual dynamics of this indicator because of difficulty of making correct estimates and challenges faced during its economic interpretation. However, the nominal value of stockbuilding declined 28% in 2013. Nevertheless, no reduction of stocks, like in the crisis-hit 2009, has been recorded to date. Eventually, gross accumulation contributed -0.8% to the final growth of GDP.
3. Export from Russia to other countries, according to Rosstat’s preliminary estimates, increased 3.8% in real terms in 2013, showing higher values than in the period of 2011 thru 2012, whereas import slowed down to 5.9%, the slowest growth after 2009. As a consequence, net export’s negative contributed merely -0.2 p.p. to GDP growth.

Moreover, slow growth rates, with most deflators remaining at the level recorded in 2012, are indicative of critical deterioration of Russian economy’s “response” to growth in the nominal volume of the demand. For instance, merely 17% of the nominal growth of GDP in 2013 was determined by growth in its physical volume, whereas the rest of the growth in GDP nominal volume (83%) resulted from its deflator growth. In 2012, the real growth of GDP contributed 33% to its nominal growth. 

A similar picture is typical of the net internal demand (GDP, net of net export, i.e. what was consumed and invested inside the country). Growth in the physical volume contributed 45% to the expansion of the net internal demand in 2012 against merely 17% in 2013. 

The situation with manufacturing of products for the internal market was even more dramatic. Rosstat’s estimates show that growth in the demand in 2013 was covered mostly with growth in import. Growth in the volume of imported goods accounted for 15 p.p. and growth in real volume of domestic production for nearly 2 p.p. of 17 p.p. of growth in the internal demand determined by growth in its physical volume. Physical volume of GDP, net of exports, increased merely 0.3% in 2013, staying within the statistical discrepancy. 

Khromov M. Y., a leading expert at Gaidar Institute’s Center for Structural Research