Without a Serious Fundamental Base, It is Groundless to Speak About a New Growth Trend

However, the Ministry of Economic Development of the Russian Federation has declared that the worst stage for the Russian economy is probably over. There are a number of indirect factors – for example, growth in rail traffic and manufacturing output and the policy of import substitution carried out by the government -- which point to that.

The Ministry of Economic Development of the Russian Federation suggests that one should wait for some time – till August – and if positive changes happen to be lasting, it is proposed to consider at the official level that the country’s economy has embarked on a new trend of growth.

At the same time, we do not share the opinion that the Russian economy can enter a new trend of economic growth. Probably, it is short-term fluctuations around the existing trend which sooner fits stagnation that is meant here, rather than a new trend of growth.

It is to be noted that stagnation cannot necessarily be an ideal one: the Russian economy may and, most probably, will keep growing.   But growth of 0.1%, 0.5%, 1% and even 1.5% can be traced by economists only. With such economic growth rates, households will experience only a cumulative effect: with growth rates of 1% a year, in ten years households’ income will increase by 10% and the extent of such growth will be discernable to people.

It is obvious that feasibility of import substitution is limited by narrowness of the domestic market, so with a lack of fundamental factors of growth, in our view, import substitution will permit to prevent a slump and maintain the economy on a float in the short-term prospect (1-3 years).

If a cumulative effect from slow growth can be felt, at least, in the long-term prospect, Russia’s lag from developed countries can hardly be reduced with such economic growth rates. Economic growth rates of 1%-2% are typical of developed economies and if Russia keeps growing at such a slow rate it will be impossible to reduce the gap. On the contrary, countries which are poorer than Russia, but which grow at a higher rate will be able in a few years to reduce their economic lag from Russia.

A new growth trend can be achieved if there are changes in fundamental factors behind economic growth: the quality of institutions responsible for the investment climate, the standard of human capital, infrastructure and other. However, so far there have been no discernable improvements in that area.  In our view, without a serious fundamental base it is groundless to speak about a new growth trend regardless of the national statistics data.

Maria Kazakova, PhD (Economics), Deputy Head of the International Budget Stability Research Department;

IvanLyubimov, Senior Researcher