From RBC Daily, Oct. 21, 2020. Complete text:
The Russian government’s forecast predicting economic growth of 3% or more is overoptimistic, say experts from the FBK economic club, who on Oct. 20 took part in a discussion titled “Hit by the Second Wave: What Will the Economy Live On – Oil, Debts, Reserves?” In their opinion, without changes to the current economic model amid a declining population, falling demand for oil, and a drop in real incomes, Russia will face stagnation after the [COVID‑19] pandemic crisis.
Problems with the economic model.
The government’s hopes for rapid economic recovery are groundless, believes Ruben Yenikolopov, rector of Russia’s New Economic School. “Besides the fact that the second wave [of COVID‑19 – RBC] has not been factored into the Economic Development Ministry’s forecast, the grounds for such an optimistic growth forecast for 2021, and especially 2022, are not entirely clear,” he said. The basic macroeconomic forecast approved by the government envisions a 3.3% growth in Russia’s gross domestic product in 2021 after a 3.9% decline in 2020. In 2022, the growth rate will accelerate to 3.4%, with 3% expected in 2023. RBC sent a query to the Economic Development Ministry about whether the macroeconomic forecast might be reviewed due to the new upward spiral in coronavirus cases in the fall.
But there are no plans for any structural economic changes [or] concrete measures to ensure long-term GDP growth rates, Yenikolopov stressed. So far, the ideas of protecting investors, reducing risks of state intervention, and deregulating the economy “remain at the rhetorical level,” he said, while the same obvious problems are still there – namely, poor protection of property rights and high investment risks for small private businesses, which, unlike state corporations and major players, have no lobbying opportunities.
The government’s basic scenario assumes 3.9% growth in investment in 2021, after a 6.6% fall in 2020. The [government’s] conservative scenario predicts that companies’ accumulated losses will keep them from regaining profitability and, as a result, will hold back investment. Business activity is expected to remain in long-term decline in sectors that were subjected to restrictions in order to fight the spread of COVID‑19.
Without economic diversification, Russia is unable to achieve long-term economic growth amid falling demand for oil and declining rent income. Unless the economic model is changed, stagnation is in store for the country, the rector of the Russian School of Economics continued. “A coherent, clear-cut vision of the country’s economic development strategy has yet to be formulated.*** So far, everything looks as if we believe we have a normal economic model that needs just a little fine-tuning. If this is a normal economic model, we will see approximately the same growth rates that we have observed over the past decade. Essentially, this is stagnation,” Yenikolopov said.
According to the Accounting Office, since 2013 Russia’s maximum GDP growth has not exceeded 2.5% [per year]; the average annual figure between 2013 and 2019 was 0.9%.
The consequences of Russians’ falling incomes.
In the long term, a protracted decline in Russians’ incomes will do nothing to rescue the economy from stagnation, believes Tatyana Maleva, director of the Social Analysis and Forecasting Institute at the Russian Academy of National Economy and Public Administration (RANEPA). “What economic growth do we expect with people’s income falling?” she said, adding that Russians’ main survival strategy amid declining monetary incomes is to economize and minimize spending, which would inevitably hold back consumer demand.
During the acute phase of the pandemic crisis, the state channeled the bulk of social subsidies to families with children, but one of the worst affected demographic groups – i.e., employees under the age of 30 without children – has received minimal aid from the authorities, she stressed. “This particular group is now entering the labor market, and their working lives are starting with a shock: There is neither work nor money. I believe we should expect not only short-term consequences, but also medium-term ones: Before long, we could lose a generation of workers,” Maleva warned.
According to an assessment of the government’s macroeconomic forecast by the State Duma’s economic policy committee, the government’s anticrisis measures have helped support those in need and ease social tension, and have somewhat mitigated the situation for the most affected sectors. But these measures were aimed at putting out fires, not developing the national economy, the deputies acknowledged. They stressed that the government should create conditions for putting the Russian economy back on the path of stable development in the new realities of low global prices for Russia’s main export commodities. Such measures must be taken even as the global economy remains unstable and risks slipping into a major crisis.