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Russian economics minister calls to stimulate supply instead of demand

September 27, 2013, 19:24 UTC+3

Economic model has exhausted its potentialities Alexei Ulyukayev said

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SOCHI, September 27 (Itar-Tass) - The demand-spurring economic model has exhausted its potentialities and should be replaced by a supply-spurring model, Russian Minister of Economic Development Alexei Ulyukayev said on Friday.

“There are three driving forces of the economic growth, namely external demand, domestic consumer demand and domestic investment demand,” he said at an international investment forum in Sochi. “Our problem stems from the fact that these factors have exhausted their resources.” He said that there were many risks as concerns external demand. “There are risks of recession in European countries, the situation in Asia might deteriorate, which is fraught with a risk of downward export tendencies, decreasing external demand with all consequences for the budget,” he noted.

The ministry is concerned over domestic risks as well. “Our forecasts of reaching a slight but stable growth of three percent in 2014 and 3.3 percent in 2016 depend, to a larger extent, on the domestic demand,” Ulyukayev noted. “But domestic demand implies expenditures, investments, the behavior of households. We see that consumer crediting will be decreasing in the short-term perspective, and it means risks concerning retail trade.” There are risks of decreased crediting of businesses, there risks as concerns the implementation of investment programmes of natural monopolies. “We are working on it and thinks that these risks do exist and they are taken into account in our forecasts,” he said.

But there is the most serious risk “that we fail to adopt a new development model which is to supersede the previous model of recovery growth after the 1998 crisis and after the 2008 crisis,” the minister said. “Now this recovery growth model is failing because it is based on permanently growing demand.”

“We must switch from the demand-stimulating economy to the supply economy,” he stressed. “Even if we could have spurred demand this or that way we would have seen that it doesn’t work.” He called to improve the quality of expense management both at the level of individual companies and the economy in general - “to achieve the same goals more efficiently and with less expenses.”

The first step towards this policy, in his words, was the decision to freeze tariffs in 2014.

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