By Sergey Drobyshevsky
There are a lot of arguments illustrating the low probability of fast and stable growth of the Russian economy in mid-term perspective. Does it mean that the economy is doomed and Russia will go down in the list of top economies? The answer – Yes and No. Sergey Drobyshevsky explains why.
Russia demonstrated outstanding economic results through the 2000s as the oil price growth and global investment boom lasted. The 2008-2009 crisis happened to be too tough – the real GDP fell by 7,9% in 2009, and was one the deepest GDP drops at that time. However, prices for oil recovered swiftly and have been maintaining around $100 per barrel and above, and Russia survived the crisis without public debt increase and kept the government budget nearly balanced. The financial sector also had minor losses (some second-order commercial banks failed in 2009, but those cases did not have serious implications), and inflation confidently went down to a one-digit range for the first time since the market reform started. But, in the second half of 2012 the economy’s growth rate is slowing down and now tends to be close to zero: Russia is ready to enter stagnation.
Oil Prices and Commodity Economy
We use to consider Russia as a commodity state whose welfare was mainly based on extraction and export of hydrocarbons. Well, Russia has one of the biggest oil and natural gas endowments, virtually dominates at the European crude oil and natural gas markets and actively builds up export of oil and gas to China South East Asia. Export of oil and gas accounts for 2/3 of exports, and taxes from those industries provide more than 50% of federal budget revenues. But, the world is changing, traditional assumptions are no longer valid, and the oil- and gas sector is not a key driver of Russian economic growth anymore.