Russia’s economy has halved in size in dollar terms

Russia’s economy has halved in size in dollar terms
On the ground the fall, while still extremely painful, has been less devastating.
By bne IntelliNews February 18, 2016

Russia’s economy halved in value in dollar terms during 2013-15, and that was after the state statistics service revised the value of the economy upwards using new methodology.

Russia’s economy was worth RUB80.4 trillion ($1.067 trillion at current exchange rates and $1.180 trillion at average exchange rates for 2015) at the end of 2015, down from a peak of $2.1 trillion in 2013, according to Rosstat.

GDP per capita fared much better and fell to just over €8,000 in 2015 versus €10,500 in 2014, but was still off by about a quarter from the 2013 high. And this result comes after Rosstat upgraded its methodology, giving the GDP numbers a 9% boost.

 “Applying international accounting standards of 1993 and 2008 for calculating GDP, Rosstat has adjusted Russia’s 2014 GDP measured in rubles up by 9%. The GDP figures for 2011–2013 were also raised by about 7%,”  writes Iikka Korhonen, chief economist for Bank of Finland Institute for Economies in Transition (BOFIT), in his weekly newsletter.

“The new GDP figures include estimates of gains from living in one’s own home, labour employed by households, capital consumption based on the market value of capital, as well as revised estimates of grey wages. The reassessed GDP 2014 data also provide wider coverage of R&D activity and defence spending,” Korhonen explains.

While the collapse in GDP value in dollar terms looks spectacular, on the ground the fall, while still extremely painful, has been less devastating. Real incomes fell by about 9.6% in 2015 and, coupled with inflation of 12.9% for the year, consumers are feeling the pinch, but have not seen their standard of living halved. The decision to float the ruble in November 2014 has cushioned the economy from the external shock of the dramatic collapse in oil prices and passed a lot of the pain to the people, but the blow has been cushioned, even if it is still very palpable.

While the biggest upward impact to the new 2014 GDP estimate came from a revised private consumption figure, the largest relative increase occurred in the value of fixed capital investment. Fixed investment accounted for over 21% of GDP in 2014 and 22% in 2015. On the supply side, the real estate branch’s added value had the largest impact as it soared by 50%. State administration and defence sector lumped together were also up 45%.

Real GDP growth figures for 2012–2014 only changed slightly. On the other hand, practically all GDP categories (consumption, fixed investment, exports and imports, as well as production branches) saw adjustments of growth rates to a varying degree.

“It is unclear whether the inclusion of Crimea data impacted the 2014 growth figures. Crimea accounts for about half of a percent of Russian GDP,” BOFIT reports.

The outlook for this year’s GDP growth is deteriorating. The consensus forecast for 2016 GDP is now -1.4%, with a range of -0.5% to -3%, down from only -0.5% a few months ago, and way down from the official forecast of 0.7% growth in December. The forecast for 2017 is a return to growth of +1.2%.