Eastern Europe

Slow Growth Long Term Reality For Russian Economy

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The main problem with Russia’s economy during the reign of President Vladimir Putin has been a lack of diversification away from the export of hydrocarbons, and systemic corruption of its oligarchic system. Neither of these two issues has been resolved in any meaningful way since the 2014 recession, although there have been some changes around the edges. Without material progress in developing Russian industry and services away from drilling oil and gas, economic growth cannot move above the 2% range, described the head of Russia’s central bank. After an aggressive three quarters of a year rebound in GDP growth, as the economy rebounded from the slowdown caused by Russia’s annexation of the Crimean peninsula and war in the Donbass region of Ukraine, growth could be stagnating.

Estimates of Russian GDP growth in the fourth quarter fall around the 2% level; the official data will be released Monday.

Russian Economic Minister: Sanctions No Longer Bite

“Despite a government vision of an economy remade by the crash in energy prices and a currency crisis that followed, Russia is increasingly resembling its old self as consumer demand comes to the fore. Expansion is falling back to the limit of what the central bank believes the economy can accomplish, with gains in GDP forecast to lose more momentum and slow slightly every quarter next year,” writes Bloomberg.

“The surprisingly strong second quarter was driven in part by one-off effects,” said Liza Ermolenko, an economist at Barclays Capital in London. “Consumption appears to have taken over as the key driver of growth,” reported Bloomberg.

Medvedev Says Russian Economy Avoided Catastrophe

Bank of Russia Governor Elvira Nabiullina has declared recently that even if oil hit $100 a barrel, Russia could not expand its GDP growth further without diversifying its economy. With Russian inflation hitting historic lows, Nabiullina may be looking to reduce her tight monetary policy.

President Putin is up for reelection next year, and barring some cataclysmic event, will be reelected, no matter how flawed that election will be. He is growing impatient and has called for further reduction in Russia’s interest rates to stimulate economic growth.

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