Russian economy under a threat of deeper recession

The product and service output index by basic type of economic activity is calculated by the Federal State Statistics Service (Rosstat) on the basis of data on physical volume of agricultural production, mineral production, manufacturing output, electric power, gas, and water production & distribution, construction, transport, retail and wholesale trade. Indeed, visual analysis of this index movements since Q3 2012 leads to a conclusion that technical recession is under way (see Fig. 1 ).



Fig. 1. The product and service output index by basic type of economic activity (as % of the previous period), Q3 2012 - Q1 2013.
Data source: Rosstat.

According to Gaidar Institute's estimates , such a movement of the index is governed, on the one hand, by declined exports of Russian hydrocarbons (mineral extraction industry) and, on the other hand, internal factors (output volumes in the manufacturing industry declined in response to a decline in investments, as well as lower demand for domestic goods due to growth in volumes of imports, etc.).

 

In our opinion, however, it is too soon to make a single-value conclusion that the Russian economy is entering a recession: as noted above, the Ministry of Agriculture of Russia forecasted a growth of 25-30% year on year in grain harvest in 2013, which, according to experts , may have a positive effect on economic growth figures in 2013.

 

However, we repeatedly underlined that a good harvest only might have a short-term effect, whereas more serious measures should be taken to accelerate economic growth rates in Russia. In addition, Sergei Stepashin, Chairman of the Accounts Chamber of the Russian Federation, expressed his concerns about the situation at hand. High oil prices are no longer guarantee high economic growth rates comparable to those in 2000-2007. Furthermore, Stepashin believes that slowdown in GDP growth rates may have an adverse effect on budget revenues. With regard to the budget rule (see Article 96.9 of the Budget Code of the Russian Federation), it can't save the situation, because the applicable legislation reads that extra oil and gas revenues may be allocated to replace short-received budget revenues, instead of going to the Reserve Fund.

 

All of the aforesaid proves once again that the Russian economy might find itself in a much deeper recession if no required reforms are undertaken.

 

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