Russia’s GDP growth slows to 1.4 per cent
August 20, 2013, 4:46 pm

The Bank of Russia has published a report about a week ago saying GDP growth will not exceed 2 per cent this year [Getty Images]

This is three times less than the figure for June-January 2012 which stood at 4.5 per cent.

However, GDP rose by 1.8 percent year-on-year in July, Deputy Economy Minister Andrei Klepach said on Tuesday, up from 1.5 percent in June.

The Bank of Russia has published a report about a week ago saying GDP growth will not exceed 2 per cent this year.

Natalya Volchkova, Policy Director at the Center for Economic and Financial Research, says the GDP decline is driven by substantial drop in investments.

“On one hand, state sector cannot support the previous volume of investments because of cuts in budget spending brought by slow down of oil price increase. On another hand, business climate for private investors is not getting better and for some segments of business, it is worsening,” Volchkova told The BRICS Post.

The slowing growth rate has raised concerns about a possible recession in the Russian economy, but officials in Moscow assert the economy is ‘stagnant’, but not in a recession.

“There is no recession. And will not be. Stagnation is probably an appropriate term. There are low growth rates, and these are institutional, structural and macroeconomic factors. This is what we will be tackling for a long time,” Alexei Ulyukayev, Russia’s Minister of Economic Development said in an interview with Kommersant daily earlier this month.

The minister claims that the state is burdened by massive social spending that is much higher in Russia compared to other middle income countries.

“On one hand, we have huge pension system burden. On the other – expenses on tariff policy have significantly increased – gas supply expenses, goods transportation expenses, railroad expenses, network expenses, energy supply expenses. Finally, we have a very bad income to GDP growth ratio,” Ulyukaev said.

Despite the dip in the recent figures, many see this indicator as healthy.

“But at the same time, this year’s growth, which we expect to hit only 1.7%, can be easily called healthy: it is not supported either by fiscal expansion (growth in federal government spending will likely decline from 18% in 2012 to just 3% this year), nor by monetary easing (money market rates are at the highest level since crisis times while lending growth has peaked in mid of 2012 and since then decelerating),” writes Maxim Oreshkin, Chief Economist for Russia at VTB Capital, adding that when Russia’s Central Bank starts loosening monetary policy, analysts expect a “powerful recovery, as there is clearly a cyclical factor in the recent slowdown.”

Daria Chernyshova in Moscow with inputs from Agencies for The BRICS Post