Is Russia’s economy just about to shift a gear downwards?
In the decade before the global financial crisis, Russia’s growth averaged 7 percent, thanks to rising oil prices, rapid credit expansion and policy reform. Then, after the economy took a nosedive in 2009, Russia rebounded to growth above 4 percent even though the global economy was sluggish and the euro area soon went back into a recession.
But now, as we begin the final three months of 2012, Russia’s economy is settling onto a lower growth trajectory. In our new Russian Economic Report, we project that Russia will grow only 3.5 percent this year. Excluding the crisis years of 1998 and 2009, this would be the lowest rate in a decade and a half.
And 2013 is unlikely to look much better.
This is sobering news, given oil prices are near record levels and higher than last year. Even such growth is at risk, in case the recent stabilization of the euro area and the global economy turn out to be short-lived, or oil prices recede from their recent highs. With businesses struggling to fill job openings, capacity utilization approaching pre-crisis peaks and oil prices projected to stay flat, new growth momentum will be difficult to come by. In addition, an aging and shrinking workforce and declining oil production could also hinder future growth.
But I think this doesn’t have to be the case. With strong macro policies, prudent management of oil wealth, and reforms to spur productivity and competition, Russia could lift growth above 4 percent and more.