Russia’s economy looks to be running down to a crawl. The FT noted yesterday that Andrei Klepach, the deputy economy minister, has slashed growth forecasts to 2.5%, down from the previously expected rate of 3.6%. Earlier in the year, Prime Minister Medvedev had forecast 5% growth for the year.The indicators aren’t cooperating:
GDP growth in the first quarter had yet to be officially released, but gathering data indicate that it will be the fifth quarter in a row in which the level of economic growth has slowed, and will probably be the worst quarterly figures since 2009, when GDP fell nearly 8 per cent amid the global economic crisis.The current deceleration has economists worried about how much further growth could deteriorate. Analysts at Nomos Bank on Tuesday wrote in a research note that “it cannot be ruled out that Russia has already entered a recession”.
Elvira Nabiullina, the incoming Russian Central Bank governor, is making all sorts of loose money noises in hopes of juicing the economy. But the FT suggests that it may not work as well as she might hope:
However, most economists point out that Russia’s economy is nearing the limit of its production capacity, with historically low unemployment at about 6 per cent. That implies that any attempts to stimulate the economy with monetary policy would simply lead to inflation.
Putin’s “national greatness” scheme for restoring Russia’s influence in the world hinges on ambitious plans to increase military spending. A sputtering economy doesn’t bode well for that and may yet lead to greater public discontent with the general state of affairs in the country. We’re not exactly holding our breath for Putin’s imminent demise, but if these trends continue, they will present a real challenge for his otherwise entrenched authority.[Vladimir Putin photo courtesy of Getty Images.]