Russia’s GDP could have fallen still further

As noted above, GDP growth rate can be classified into three components, namely the structural or trend component (maximum possible growth rate through available production capacity and labor force); the market component which is governed by deviation of actual crude oil price from long-time average annual cost; and the business component which is governed by business cycle fluctuations.

If the average Russian GDP growth rate has been 6-7% over the last decade, the GDP structural component, which is insensitive to cyclical fluctuations and therefore less variable by nature, has been near 3-4%. In its turn, the GDP market component, which is sensitive to crude oil price movements, changed between 0 and 3 p.p., while the GDP cyclical component between 0 and 2 p.p. prior to 2008.

The situation changed in 2008-2009: the GDP cyclical component slumped to -12 p.p. in response to global recession, but the slump was partially compensated by high crude oil prices.

Thus, the Russian GDP could have fallen still further amidst the crisis, which was not the case, because the Russian economy still depends on prices of primary commodities. For example, our estimates show that the current GDP growth (3.4% in 2012) depends largelyon high crude oil prices, approx. 2 p.p., whereas the global market situation keeps having an adverse effect. It should be noted once again that this dependence only can be eliminated through deep structural economic reforms.

Kazakova M.V. - Ph.D. in Economics, Head of Economic Development Department