News / Economy

In Blow to Putin, Russia Slashes Long-term Growth Forecast

A general view shows the Achinsk oil refining factory, owned by the Rosneft company, outside the town of Achinsk, some 188 km (117 miles) west of Krasnoyarsk, Russia, Oct. 28, 2013.
A general view shows the Achinsk oil refining factory, owned by the Rosneft company, outside the town of Achinsk, some 188 km (117 miles) west of Krasnoyarsk, Russia, Oct. 28, 2013.
Reuters
Russia acknowledged for the first time on Thursday that its economy would lag global growth over the next two decades, setting the stage for an era of stagnation that could threaten President Vladimir Putin's grip on power.
 
Economy Minister Alexei Ulyukayev forecast that Russia's economy would grow at an average rate of 2.5 percent during that period - down from an earlier 4 percent and half the rate Putin targeted before his return to the Kremlin last year.
 
The downward revision casts Russia as the poor relation in the BRICS group of large emerging markets that includes Brazil, China, India and South Africa. The ministry expects the BRICS to grow at a 5.2 percent clip during that time.
 
With the ministry expecting global economic growth to average 3.4-3.5 percent, the outlook threatens to make a mockery of Putin's oft-repeated pledge to lift Russia into the world's top-five economies by the end of this decade.
 
And it is still based on an oil price forecast many analysts view as over-optimistic, showing just how much Putin's Russia, the world's largest oil producer, relies on not only high, but rising, oil prices to prosper.
 
“To a large extent the forecasts are catching up with reality,” said Neil Shearing, chief emerging markets economist at Capital Economics in London.
 
He estimates Russia's long-term growth potential at 2-2.5 percent, in line with the view of the central bank which sees the economy running at close to capacity.
 
“It could go to 3.5 percent or 4 percent if you have a really reform-minded government,” he said. “But I don't think that applies to current reform, of which there is little prospect at the moment.”
 
Stagnation as policy goal?

 
Putin, who faced large-scale opposition protests in Moscow and St Petersburg before his election, has taken a more authoritarian track in his third, six-year, term.
 
A lack of reforms in an economy hamstrung by red tape, corruption and weak rule of law has led to suggestions that the government has no recipe to achieve a turnaround.
 
Satirists and economists alike increasingly compare the 61-year-old Putin with Soviet leader Leonid Brezhnev, whose rule from 1964 until he died in 1982 projected an image of stability that ultimately proved illusory.
 
“Stagnation is starting to look like a policy goal in Russia,” commented Sanna Kurronen, an analyst at Danske Capital, adding that it was vital for Russia to invest to replace its aging Soviet capital stock.
 
Prime Minister Dmitry Medvedev admitted last week in an interview with Reuters that “there is no magic formula to boost growth. In any case, if there is, we do not know what it is.”
 
The pessimistic outlook may increase pressure on Medvedev, who served a single term as president from 2008 until 2012, and whose political end has been long foreseen by analysts since he became premier in May 2012.
 
Ulyukayev, a liberal technocrat, moved to the government from the central bank in June after being passed over for the governor's job by Putin.
 
The bank's new head, Elvira Nabiullina, has prioritized fighting inflation over promoting economic growth. She was hand-picked by Putin in a move typical of a leadership style that plays factions against each other to prevent the emergence of an obvious potential successor.
 
Unusually, the government's pessimism was not shared by some of the foreign investors that have stayed the course in its potentially profitable but challenging market of more than 140 million people.
 
“Russia is a country that will deliver higher growth relative to the eurozone and where there is not this plethora of regulatory constraints on banks or fees,” said Frederic Oudea, chief executive of French bank Societe Generale.
 
“Even without looking all the way to 2030, this is a market that offers potential,” Oudea told reporters on a conference call. SocGen reaffirmed its commitment to Russia after sacking the head of its local unit after he was charged with bribery.
 
No-one else to blame
 
In a frank admission, the Economy Ministry said there was no-one else to blame for the poor outlook but Russia itself.
 
The ministry said one of the reasons for latest changes is that now it is taking a conservative scenario as the base scenario, while in the spring it took a moderate outlook.
 
“Even sustaining the generally low rate of growth that we have projected will require a lot of hard work,” Ulyukayev told a news conference.
 
Domestic and foreign direct investment will remain weak, as will growth retail sales, exports and wages, the forecast cautioned, while business will be hampered by a lack of competitiveness and rickety infrastructure.
 
It said oil prices would rise to $160-$170 per barrel by 2030. In real terms, adjusted to account for inflation after 2010, this translates into a range of $90-$110 per barrel throughout the forecast period.
 
That is more bullish than expectations of a decline to $80 per barrel in real terms by 2020 in a recent Reuters poll of analysts who took greater account of the U.S. shale energy revolution that has put Russia on the back foot.
 
“It is good that the government... prefers to be realistic rather than live in denial,” said Sergei Guriev, a prominent economist and former adviser to the government who has become an outspoken critic of Putin and now lives in exile in France.
 
“On the other hand, it shows that Russia has hideous internal problems.”

You May Like

Philippines, Muslim Rebels Try to Salvage Peace Pact

Peace process faces major setback after botched military operation to find terrorists results in bloody gunbattle between government forces, Moro Islamic Liberation Front fighters More

Republicans Expect Long, Expensive Presidential Battle

Political strategist says eventual winner will be one who can put together strongest coalition of various conservative groups that make up Republican Party More

Video New Wheelchair Is Easier to Use, Increases Mobility

Engineers have come up with a lever-operated design that makes use of easily accessible bicycle technology More

Featured Videos

Your JavaScript is turned off or you have an old version of Adobe's Flash Player. Get the latest Flash player.
Liberia's Almost Last Ebola Patient Grateful but Still Grievingi
X
Benno Muchler
March 26, 2015 3:41 PM
Beatrice Yardolo was to make history as Liberia’s last Ebola patient. Liberians recently started counting down 42 days, the period that has to go by without a single new infection until the World Health Organization can declare a country Ebola-free. That countdown stopped on March 20 when there was another new case of Ebola, making Yardolo’s story a reminder that Ebola is far from over. Benno Muchler reports from Monrovia.
Video

Video Liberia's Almost Last Ebola Patient Grateful but Still Grieving

Beatrice Yardolo was to make history as Liberia’s last Ebola patient. Liberians recently started counting down 42 days, the period that has to go by without a single new infection until the World Health Organization can declare a country Ebola-free. That countdown stopped on March 20 when there was another new case of Ebola, making Yardolo’s story a reminder that Ebola is far from over. Benno Muchler reports from Monrovia.
Video

Video Cambodian Land Grabs Threaten Traditional Communities

Indigenous communities in Cambodia's Ratanakiri province say the government’s economic land concession policy is taking away their land and traditional way of life, making many fear that their identity will soon be lost. Local authorities, though, have denied this is the case. VOA's Say Mony went to investigate and filed this report, narrated by Colin Lovett.
Video

Video US, South Korea Conduct Joint Military Exercises

The Eighth U.S. Army Division and the Eighth Republic of Korea Mechanized Infantry Division put on a well orchestrated show of force for the media this week during their joint military training exercises in South Korea. VOA’s Seoul correspondent Brian Padden was there and reports the soldiers were well disciplined both in conducting a complex live fire exercise and in staying on message with the press.
Video

Video Space Program Status Disappoints 'Last Man on the Moon'

One of the films that drew big crowds last week at the annual South by Southwest festival in Austin, Texas, tells the story of the last human being to stand on the moon, U.S. astronaut Eugene Cernan. It has been 42 years since Cernan returned from the moon and he laments that no one else has gone there since. VOA’s Greg Flakus reports.
Video

Video Young Filmmakers Shine Spotlight on Giving Back

A group of student filmmakers from across the United States joined President Barack Obama at the White House this month for the second annual White House Student Film Festival. Fifteen short films were officially selected from more than 1,500 entries by students aged 6 through 18. The filmmakers and their families then joined the president and a group of celebrities for a screening of their films. VOA’s Julie Taboh reports.
Video

Video VOA Exclusive: Interview with Afghan President Ashraf Ghani

Afghan President Ashraf Ghani, during his first visit as president to Washington, gave a one-on-one interview with VOA Afghan Service reporter Said Suleiman Ashna, about his request for a change in U.S. troop levels, the threat from the Islamic State, and repairing relations with the United States and Pakistan. The interview was held at Blair House, late Sunday, in Pashto.
Video

Video California Science Center Tells Story of Dead Sea Scrolls

The ancient manuscripts were uncovered in the mid-20th century, and they are still yielding clues about life and religious beliefs in ancient Israel. As VOA's Mike O'Sullivan reports, an exhibit in Los Angeles shows how modern science is bringing the history of these ancient documents to life.
Video

Video Angelina Jolie Takes Another Bold Step

Hollywood actress and filmmaker Angelina Jolie has revealed she had her ovaries and fallopian tubes removed to lower her odds of getting cancer. Doctors say the huge publicity over her decision will help raise awareness about the importance of cancer screening. VOA’s George Putic has more

All About America

Circumventing Censorship

An Internet Primer for Healthy Web Habits

As surveillance and censoring technologies advance, so, too, do new tools for your computer or mobile device that help protect your privacy and break through Internet censorship.
More

World Currencies

EUR
USD
0.9211
JPY
USD
119.18
GBP
USD
0.6722
CAD
USD
1.2509
INR
USD
62.518

Rates may not be current.