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Russian economy stagnating, authorities admit

July 22, 2013, 17:26 UTC+3 Alexandrova Lyudmila

MOSCOW, July 22 (Itar-Tass) - Russia’s economy is in a state of stagnation. The first six months of 2013 demonstrated “zero growth,” Russian Deputy Minister of Economic Relations, Andrei Klepach, has admitted. Until recently however, the Russian top authorities have been avouching that, unlike the euro zone, Russia’s GDP is growing, though slowly.

Likewise, unemployment is growing, while investments are going down.

“So far, stagnation tendencies have not been outweighed by economic growth. We hope that June will be the final month of the stagnation phase characteristic of the beginning of the current year,” Klepach said on Friday. According to the deputy minister, the GDP growth in June was 1.5 percent on June 2012, and adjusted for the seasonal the growth was zero.

Russia’s GDP growth in the first quarter of 2013 grew by 1.7 percent on an annualized basis, the growth accelerated from 1.6 to 1.9 percent in the second quarter, Klepach noted.

The International Monetary Fund however has already downgraded Russia’s GDP growth forecasts from 3.4 percent to 2.5 percent.

Klepach attributed the poor GDP dynamics in the first six months of 2013 to the poor exports, which dropped in the first quarter of 2013, and were near stagnation in the second quarter. Apart from that, in his words, the “pause in growth” was caused by an investment slump. Russia’s exports in June were practically at the level of May, increasing by a mere 0.4 percent to reach 41.6 billion roubles, he noted. Imports in June went up by 5.7 percent and stood at 27.9 billion U.S. dollars.

“We have a slump in investments,” he admitted, “As far as investments are concerned, June was a record month in terms of the slump. The Russian State Statistics Service’s year-on-year estimates were minus 3.7 percent, and we put the figure at minus 2.4 percent as adjusted for the seasonal and calendar factor.”

According to Klepach, investments dropped by 1.4 percent in January-June. Currently, in his words, Russia is living though an investment decrease that is rooted in the slump of the construction sector, which nearly collapsed in June.

Experts have been warning about this for quite a time. Since last summer, industrial production in the country has been going down. The GDP continued to grow by inertia thanks to trade alone.

Russia’s former Minister of Economic Development Andrei Belousov, who is now a presidential aide, also warned that Russia’s GDP was to be decreasing to a state of stagnation. Back in April, he said that if emergency measures were not taken, the GDP would be hitting the skids.

His successor, the current Minister Alexei Ulyukayev, sounded more optimistic. There will be no recession in Russia, he maintained. “Moreover, I believe that the chances for a speed up in growth in the second half of the year are quite real,” he said.

Meanwhile, unemployment has been on the rise for three months in a row and now it is nearing 5.4 percent, the level of February-March 2012. According to the Novye Izvestia newspaper, one million people are now registered with employment agencies. According to the Russian State Statistics Service, the official number of the jobless in Russia in June was 4.089 million.

Minister of Labor and Social Protection Maxim Topilin forecasts that unemployment will somewhat increase but no surge is expected.

“So far, we have no data that unemployment has started to grow but we see that the economy is in a state of stagnation and many companies are cutting their development programs, investment programs. That is why no new jobs are being created. And even if some jobs are created salary offers are inferior to people’s expectations… So, I think the forecasts are quite justified, because there is no economic development,” the newspaper cites Yuri Virovtsev, the president of HeadHunter group of companies.

The capital is draining from the country. According to the Central Bank of Russia, capital outflow exceeded inflow by 38.1 billion U.S. dollars in the first six months of 2013 (the flight of capital somewhat slowed down in the second quarter). That is why Klepach said that the ministry of economic development would adjust its capital flight forecasts from the current 30 billion to 50 billion U.S. dollars.

Experts say that so far Russia is facing stagnation, not a crisis, and try to find the reasons for that.

The Russian economy is now demonstrating some signs of recession, but these signs are somewhat smoothed, the REGNUM agency cites the head of the analytical centre of the Agency for Mortgage Lending, Anna Lyubimtseva.

“Recession is not a crisis. Recession also has negative impacts but they are softer,” Lyubimtseva said. “Take the situation of 2009 - it was a sharp failure, the market reaction was abrupt. In the present-day situation, both the market and the consumer will have enough time to adapt.”

Experts from Economist Intelligence Unit, quoted by the portal, say the Russian economy is now facing three grave problems, namely investment activities have practically reduced to nil, inflation has spurred up expenses of businesses, and the strengthening of the rouble is shattering the competitiveness of the industrial sector.

The Russian economy will continue to stagnate, while the existing imbalances will further increase giving birth to new beds of instability, including because of the inconsistent policy of the government, according to a new issue of the Commentaries about the State and Business complied by analysts of the Higher School of Economics’ Research Institute.

Experts say key obstacles on the path of Russia’s economic development are capital drain and the balance of payments in conditions of decreasing exports. Apart from that, imbalances in the Russian economy stem from the faster growth of wages than of labour efficiency.