Russia’s economy runs up against structural limits again

Russia’s economy runs up against structural limits again
Russia’s growth falls to 1.5% in July. / bne IntelliNews
By bne IntelliNews August 30, 2017

Russia’s economic growth decelerated sharply to 1.5% y/y in July from 2.9% y/y in June, according to the economy ministry, as it hits its structural limits again.

After nearly a decade of boom during the noughties, the economy started to slow dramatically from about 2010, and despite the high oil prices growth dropped into the low single digits by 2013 – well before the geopolitical showdown with the West started the following year.

Russia has used up all its “catch-up” growth and further growth is constrained by deep structural problems that have not been addressed. Because of these problems, growth is capped at about 2%, say economists. The July results highlight the problem. Russia’s economy finally emerged from the 2008 crisis in the last quarter of last year and growth has been building in the first half of this year. However, July’s result suggest the limits have already been hit despite a recovery in growth driving consumption and investment in the first half.

“Given the previously reported modest 1.1% y/y industrial production growth, we do not see this deceleration as surprising and view it as a return to normal levels after the unusually high 2.5% y/y increase reported in 2Q17 due to weather factors and a one-off boost to investments. We target 1.2% y/y growth for 3Q17 and forecast 1.4% y/y for 2017,” Natalia Orlova, chief economist at Alfa Bank said in a note.

While various people are working on a new plan – including former finance minister and co-head of the presidential council Alexei Kudrin, as well as more recently Minister of Economy Maxim Oreshkin, who has been tipped as taking the intellectual lead in drawing up a blueprint – little has actually be done and less is expected before the presidential elections slated for next September.

 

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