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Newspapers review Russian economic situation

December 25, 2013, 12:44 UTC+3 (Itar-Tass World Service) ¶ MOSCOW

Having quickly emerged from recession, the Russian economy suddenly and firmly stranded

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MOSCOW, December 25, 12:03 /ITAR-TASS/. The Vedomosti newspaper publishes an analytical article on Russia’s economic situation. “Stagnation has become a norm in the economy,” the newspaper writes. “Just in 1.5 years the Russian economy growth rates decreased four times. Stagnation cannot be overcome without accelerating reforms, stimulating investment in the real economy sector and an increase in labour productivity.

Having quickly emerged from recession, the Russian economy suddenly and firmly stranded, Vedomosti writes. A year ago, in December 2012, Russia's government had hoped to preserve growth rates above three percent, but “we don’t like it very much,” Prime Minister Dmitry Medvedev admitted then. Such growth rate was falling short of the socio-economic development targets set before the Cabinet. The targets demanded a four- or five-percent growth rate, better a six- or seven-percent rate, as it had been before the crisis and as had been promised by the accelerated reform plan proposed by the Economic Development Ministry.

However, the confidence that such a leap was possible in the coming years was dwindling month by month. The time ticked by, and every new statistics report showed that economic growth took a nosedive (in 1.5 years, by the third quarter of 2013, the growth rates plummeted from 4.8 to 1.2 percent) and the slowdown was becoming severe. As a result, in September, the government changed its outlook for pessimistic - making conservative economic and social planning: from the traditional three scenarios reckoned by the Economic Development Ministry, not an average between the “worst” and “best,” as usual, but the “worst” scenario became the main.

Stagnation, which, as the Economic Development ministry had hoped in summer, would be temporary and would disappear by autumn, in November was recognised protracted. Economic Development Minister Aleksei Ulyukayev warned that it would continue also in 2014. According to the economic outlook to 2030, made public in November, Russia’s lagging behind the world growth rates would become irreversible. In this connection, no system-based improvement in the living standards of Russians is expected: resources will be enough only for a couple of projects in the oil and natural gas sphere and for wage increases for public-sector employees.

External factors have become a trigger of Russia’s creeping crisis: it has turned out that without an increase in oil prices - even if they remain at a rather high level - all the rest is also not growing. The deterioration of the external economic environment has led to a drop in company profits. According to the Economic Development Ministry, in the first half of the year, profit slump in the metallurgical industry was 44.1%, in the chemical industry - 23.6%, in engineering - 31.5 %, in construction - 50.9%.

The decrease in the external and domestic demand has caused the industry collapse: its overall growth rates are maintained near zero owing to the increase in oil production on new fields in Eastern Siberia (production is decreasing on the old fields), and manufacturing is in the red beginning from the second quarter. According to estimates of the Expert RA rating agency, industrial recession has affected 40% of Russian regions, only during the 2009 crisis more regions had been affected.

Competition can revive the economy, but not with support from the budget and not with state-owned companies, as it is happening now, the newspaper continues. “The fundamental causes of Russia’s recession - low labour productivity and poor quality of investment - simply cannot be remedied by the traditional economic incentives,” said Natalia Orlova of Alfa Bank. The more so that neither the budget nor monetary policy can be called disincentive, she said.

“Major social obligations of the government to state employees, civil servants and pensioners are the main factors restricting reforms,” Orlova believes. “The social costs of changing the current socially-oriented policy are too high. So, the country’s GDP growth in the coming years will not exceed 1.5%.


Itar-Tass is not responsible for the material quoted in the press reviews.

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