News / Europe

Russia's Stagnation Raises Pressure for new Growth Model

Reuters
A Lukoil petrol station board is seen in St. Petersburg, Russia, Nov. 26, 2013.A Lukoil petrol station board is seen in St. Petersburg, Russia, Nov. 26, 2013.
x
A Lukoil petrol station board is seen in St. Petersburg, Russia, Nov. 26, 2013.
A Lukoil petrol station board is seen in St. Petersburg, Russia, Nov. 26, 2013.
Russia said on Tuesday that its oil- and gas-dependent economy will stagnate over the next two years, increasing the pressure on President Vladimir Putin to fulfill pledges to expand and diversify Russian industry.
 
The Economy Ministry cut its 2013-2015 gross domestic product growth forecast after months of data pointing to stagnant corporate investment as well as declining growth in consumer demand.
 
The revisions, a few weeks after Russia admitted for the first time that its economy would lag global growth over the next two decades, added ammunition to arguments that Russia needs a new growth model.
 
“Stagnation will definitely continue, with moments of recovery,” Economy Minister Alexei Ulyukayev said, in comments quoted by RIA Novosti agency.
 
Despite an average price of oil, Russia's chief export, above $100 this year, Ulyukayev said GDP was likely to grow only by 1.4 percent, compared to an earlier forecast - itself reduced - of 1.8 percent.
 
The new forecasts envisage growth inching up to 2.5 percent next year, and 2.8 percent in 2015: down from previous forecasts of 3 percent and 3.1 percent respectively.
 
The ministry then expects growth to average 2.5 percent over the next two decades, very modest for an emerging market more used to growth rates above 6 percent in the previous decade.
 
“This is not an economic crisis: this is a crisis of an economic model,” Andrei Makarov, head of the State Duma budget and tax committee, said in a recent parliamentary discussion.

Pressure on Putin
 
The new forecasts are far below the 5 percent rate President Vladimir Putin targeted before his return to the Kremlin last year, when he pledged to lift Russia into the world's top five economies by the end of this decade, from around eighth at present.
 
His approval ratings, still at 61 percent last month, are nonetheless the lowest since June 2000, the month after he was first elected president, according to the independent Levada polling agency.
 
“[The forecast revision] is a kind of an attempt by the Economy Ministry to attract more attention to the problem,” said Liza Ermolenko, economist at Capital Economics in London.
 
Consumer demand and company investment have been the main drivers of growth since the 2008-2009 debt crisis, with exports weighed down by the weakness of external markets.
 
Slower growth in income and in retail lending suggests that retail sales growth - a good barometer of consumer demand - will slow down.
 
However, it is moribund investment activity - money that firms put into infrastructure - that has been hurting the economy the most.
 
Investment has been stagnating since mid-2012. Now the Economy Ministry envisages it growing just 0.2 percent this year, nowhere near its earlier forecast of 2.5 percent.
 
“Prevailing low investment sentiment can introduce capacity constraints that will ultimately transform into a lower potential GDP growth rate,” Rosbank economist Evgeny Koshelev said in a recent note.

Oil optimism
 
And even Russia's much reduced long-term growth forecasts assume the price of oil will rise in a way that many analysts view as over-optimistic.
 
Russia is the world's largest oil producer. Oil and gas account for two-thirds of its exports, and commodities in general for 90 percent - a sign that few other sectors are globally competitive and therefore have rapid growth potential.
 
The International Monetary Fund has urged Russia to embrace a new model of growth, complemented by diversification of the economy, more efficient use of resources and higher investment.
 
It also has urged Moscow to cut its non-oil budget deficit, which now stands at around 10 percent of GDP.
 
A new growth model, which would also address deficits in labor productivity and infrastructure, does not have to mean a radical departure, Bikas Joshi, IMF's country director for Russia, told foreign companies at a recent conference.
 
“It is crazy to think that, in a country so blessed with natural resources, the model does not incorporate that.”
 
But economists and analysts have long called for structural reforms to make the conditions for doing business outside the energy sector less offputting to foreign investors.
 
“Weak growth is raising the pressure for some sort of policy response,” Ivan Tchakarov, an analyst at Citi in Moscow said in a note this week.
 
“Ideally, this would involve a 'positive shock' to the investment climate, but, in our view, the more likely response is easier monetary conditions and a rise in the public-debt-to-GDP ratio.”

You May Like

Israelis Quietly Expand Enclave in Palestinian District of Jerusalem

Estimated 500 settlers, armed or protected by paramilitary police, live in Silwan among 50,000 Palestinians More

Video US, Iran Face Similar Challenges in Syrian Fight Against IS

Both Washington, Tehran back fighters battling Islamic State militants in Iraq -- but in Syria they support opposing sides in country’s civil war More

China Boosts Efforts to Help Afghan, Regional Stability

Observers say China’s increased regional involvement are due to concerns that Afghan instability and the presence of anti-China militants in Pakistani border areas could fuel Xinjiang troubles More

Featured Videos

Your JavaScript is turned off or you have an old version of Adobe's Flash Player. Get the latest Flash player.
China Political Meeting Seeks to Improve Rule of Lawi
X
William Ide
October 20, 2014 10:23 AM
China’s communist leaders will host a top level political meeting this week, called the Fourth Plenum, and for the first time in the party’s history, rule of law will be a key item on the agenda. Analysts and Chinese media reports say the meetings could see the approval of long-awaited measures aimed at giving courts more independence and include steps to enhance an already aggressive and high-reaching anti-corruption drive. VOA’s Bill Ide has more from Beijing.
Video

Video China Political Meeting Seeks to Improve Rule of Law

China’s communist leaders will host a top level political meeting this week, called the Fourth Plenum, and for the first time in the party’s history, rule of law will be a key item on the agenda. Analysts and Chinese media reports say the meetings could see the approval of long-awaited measures aimed at giving courts more independence and include steps to enhance an already aggressive and high-reaching anti-corruption drive. VOA’s Bill Ide has more from Beijing.
Video

Video Ebola Orphanage Opens in Sierra Leone

Sierra Leone's first Ebola orphanage has opened in the Kailahun district. Hundreds of children orphaned since the beginning of the Ebola outbreak face stigma and rejection with nobody to care for them. Adam Bailes reports for VOA about a new interim care center that's aimed at helping the growing number of children affected by Ebola.
Video

Video Latinas Converting to Islam for Identity, Structure

Latinos are one of the fastest growing groups in the Muslim religion. According to the Pew Research Center, about 6 percent of American Muslims are Latino. And a little more than half of new converts are female. VOA’s Carolyn Presutti travelled to Miami, Florida -- where two out of every three residents is Hispanic -- to learn more.
Video

Video Nigeria Agrees to Cease-Fire With Boko Haram

Islamist militant group Boko Haram and the Nigerian government have agreed to a cease-fire. The Nigerian government issued an order Friday, telling all military chiefs "to comply with the cease-fire agreement in all theaters of operations. Why now and the significance of the agreement are questions on some people’s minds. VOA's Mariama Diallo reports.
Video

Video Kobani Fighting Sends 400,000 Refugees to Turkey

The offensive by Islamic State militants against the northern Syrian city of Kobani has caused hundreds of thousands of residents to flee to Turkey. They receive help from Turkish authorities and individuals, but say much more is needed. VOA’s Scott Bobb reports from the town of Suruc a few kilometers from the border.
Video

Video Exclusive: American Joins Kurds' Anti-IS Fight

The United States and other Western nations have expressed alarm about their citizens joining Islamic State forces in Syria and Iraq. In a rare counterpoint to the phenomenon, an American has taken up arms with the militants' Syrian Kurdish opponents. Elizabeth Arrott has more in this exclusive profile by VOA Kurdish reporter Zana Omer in Ras al Ayn, Syria.
Video

Video South Korea Confronts Violence Within Military Ranks

Every able-bodied South Korean male between 18 and 35 must serve for 21 to 36 months in the country’s armed forces, depending upon the specific branch. For many, service is a rite of passage to manhood. But there are growing concerns that bullying and violence come along with the tradition. Reporter Jason Strother has more from Seoul.
Video

Video Comanche People Maintain Pride in Their Heritage

The Comanche (Indian nation) once were called the “Lords of the Plains,” with an empire that included half the land area of current day Texas, large parts of Oklahoma, New Mexico, Kansas and Colorado.The fierceness and battle prowess of these warriors on horseback delayed the settlement of most of West Texas for four decades. VOA’s Greg Flakus reports from Lawton, Oklahoma, that while their warrior days are over, the 15,000 members of the Comanche Nation remain a proud people.
Video

Video Turkey Campus Attacks Raise Islamic Radicalization Fears

Concerns are growing in Turkey of Islamic radicalization at some universities, after clashes between supporters of the jihadist group Islamic State (IS) or ISIS, and those opposed to the extremists. Pro-jihadist literature is on sale openly on the streets of Istanbul. Critics accuse the government of turning a blind eye to radicalism at home, while Kurds accuse the president of supporting IS - a charge strongly denied. Henry Ridgwell reports from London.
Video

Video Syrian Defector Leaks Shocking Photos of Torture Victims

Shocking photographs purporting to show Syrian torture victims are on display at the U.S. Holocaust Memorial Museum in Washington. The museum says the graphic images are among thousands of photographs recently smuggled out of Syria by a military policeman-turned-defector. As VOA reporter Julie Taboh reports, the museum says the photos provide further evidence of atrocities committed by the government of Syrian President Bashar al-Assad against its own people.
Video

Video Drought-Stricken California Considers Upgrading Water System

A three-year drought in California is causing a water shortage that is being felt on farms and cities throughout the state. As VOA's Mike O’Sullivan reports, water experts, consumers and farmers say California needs to make changes to cope with an uncertain future.
Video

Video TechShop Puts High-tech Dreams Within Reach

Square, a business app and card reader, makes it possible to do credit card transactions through cell phones. But what made Square possible? VOA’s Adrianna Zhang and Enming Liu have the answer.

All About America

AppleAndroid