Russian Recovery Goes W-Shaped in Challenge for Putin's New Term
ByRussia is finding economic recoveries aren’t what they used to be back when President Vladimir Putin was just getting started.
The economy of the world’s biggest energy exporter is muddling through another quarter, failing to gain much traction after its longest recession of Putin’s almost two-decade rule. By contrast, the crises in 1998 and 2009 set the stage for sharp rebounds as stronger oil prices and a surge in domestic demand and output helped make up lost ground.
Fragile Recovery
Russian economy has returned to annual growth after two years of contraction
Source: Federal Statistics Service, Bank of Russia's forecasts
What little growth Russia has eked out so far is a result of factors that may not last. In the months before Sunday’s presidential election, easily won by Putin, salary boosts and state-sponsored infrastructure works steadied an economy that ended last year on a surprise downturn. But growth in industrial output slowed more than forecast last month, and data due Wednesday will show that key consumer indicators stagnated or worsened.
“Infrastructure projects and election-linked wage adjustments are factors in play in the first half of the year,” said Natalia Orlova, chief economist at Alfa-Bank. “In the second half of the year, their impact will diminish or fade altogether.”
| Annual performance | Feb. forecast | January |
| Retail sales | 3% | 2.8% |
| Real wages | 6% | 6.2% |
| Unemployment | 5.2% | 5.2% |
| Real disposable income | -0.1% | 0% |
The stop-and-go economy lays bare the challenges facing Putin in his new six-year term as he considers a spending spree on health care and roads in a bid for a “decisive breakthrough” to raise living standards. But a seesaw in oil prices, alongside tight fiscal and monetary policies, are constraining growth that’s already not too far off its potential.
What Our Economists Say...The best guide for what’s happening may be consumption growth, which held up fairly well in the fourth quarter. We expect that to point to a soft rebound at the start of 2018, taking the expansion back to a pace that’s sustainable but unimpressive.--Scott Johnson, Bloomberg Economics |
Slow and Steady
Russia's seasonally-adjusted quarterly economic growth accelerated on one-off factors in 1Q
Source: Bank of Russia's research and forecasting department
The dim outlook won’t sit well with Putin, who’s said that Russia needs to harness new sources of growth to outpace the global economy. But at least for the next three years, consumer demand will remain the main driver of expansion, according to state development lender Vnesheconombank.
Without structural reforms, the Bank of Russia says the economy won’t grow faster than about 1.5 percent. Gross domestic product added an annual 2 percent in January after a 1.4 percent gain in December, according to the Economy Ministry.
It’s now on a trajectory of “slow but sustainable growth,” according to the central bank’s research and forecasting department, which attributed the acceleration at the start of the year to “one-off factors in industrial production which will most likely weaken in the coming months.”
— With assistance by Zoya Shilova