The Low Level of the Rate of Unemployment Does Not Help the Russian Economy

Registered as unemployed by state employment bureaus were 0.9m people, including 0.7m people receiving unemployment allowances. In May 2014, the number of the gainfully occupied population amounted to 75.3m people or over 52% of the total population of the country.

According to the preliminary data, in May 2014 households' real disposable cash income (the income less mandatory payments adjusted to the consumer price index) increased by 5.8% as compared to the respective period of 2013, while in January-May 2014, by 0.2%. In May 2014, average monthly accrued wages and salaries amounted to Rb 33,280 and increased by 13.0% as compared to the respective period of the previous year.

So, in the economy there is an usual stagnation where economic growth rates are falling fast, while the unemployment rate is going down and the real disposable income is growing.

At the same time, it is becoming apparent that the government gives preference to investments as a measure which further stimulates economic growth. However, the problem consists in the fact that investments may not be required and fail to produce a desirable effect on economic growth. On the contrary, in the existing situation further "pumping" of the economy may result in growth in the inflation rate and deeper stagnation.

It is to be reminded that as early as 2012 it was clear that the Russian economy bumped up against "a glass ceiling" and there was explicit evidence that the labor market was overheated. So, there was active growth in the 2003–2007 period, while after 2008 the economy failed to attain the pre-crisis rates of development. At present, it is believed that with the existing model of economic growth the country has gained the level of "potential" GDP (that is, the level of output with a complete utilization of labor and production capacities).

It is to be noted that due to geopolitical risks a search for sources stimulating economic growth is complicated. From the beginning of 2014, global financial markets showed little interest in Russian debt instruments. Actually, foreign markets were closed to Russian borrowers as early as March due to approval by the RF Council of Federation of introduction of troops to Crimea. According to calculations of S&P analysts, in 2014 Russian borrowers will have to repay the external debt of $90bn–$110bn (including interests). So, to meet their needs in funding Russian companies will have to apply to large state-run Russian banks.

At the same time, there is a rally on the Russian stock market: last week the Russian equity market became a growth leader among developing countries. The turning point in the situation was caused by the statement made by Vladimir Putin, President of the Russian Federation that he was prepared to work with the new Ukrainian leader. The above statement helped reduce investors' fears about introduction of new sanctions against Russia. Growth in the MICEX index exceeded 20% of the March minimum level.

Despite temporary improvement in the situation on external markets, the government will have to look for new mechanisms which stimulate economic growth; they may include upgrading of the quality of institutes and infrastructure, higher investments in the human capital and support of the small and mid-sized business.

Yekaterina Pospelova, Senior Researcher