MOSCOW – Last year, Russia set a goal to accelerate its economic expansion – growth faster than the world as a whole – as a way to secure the country’s position as a global hegemonic power.
So far, the plan has begun.
The proposal of President Vladimir Putin, who considered some economists a rebound to the economy oriented in the Soviet period, called for state spending of $ 400 billion over six years in specific areas. These included 900 piano music schools and 40 covered ice rinks, along with funds for roads and airports.
But this month, the government stated that Russia’s gross domestic product grew by only 1.3 percent in 2019, down from 2.5 percent the previous year. The bureaucratic delay in spending money has been blamed.
In contrast, the Global average The growth for the past year was 2.9 percent, according to the International Monetary Fund. The goal of lifting growth from the global rate by next year appears now intolerable.
Six years after the imposition of Western sanctions, restrictions on access to Western banks and the price of oil, a major Russian export, have fallen to historic lows, the rate of growth shows that the economy is still creeping, seriously hampered by low private investment and the bureaucratic state bureaucracy that dominates Russia The largest industries.
However, with many other measures, the economy appears to be strong. The government boasts of inflated foreign exchange reserves, success in taming inflation (now at an annual rate of 2.4 percent), and a budget surplus of 500 billion rubles, or $ 8 billion, last year.
Ironically, many economists now point to the huge budget surpluses Foreign currency and gold reserves, Which totaled $ 562 billion at the end of last month, as a problem. The government’s reluctance to spend money on stimulus sent a signal to the private industry.
“Nobody wants to invest,” said Vladislav Inuzimtsev, founder and director of the Center for Post-Industrial Studies, a research center in Moscow. “No one believes that the economic situation will be better tomorrow than it is today.” Mr. Inozemtsev describes this period as a “lost decade” in Russia.
Despite last year’s pledge of stimulus spending, a commitment reaffirmed this year when Mr. Putin outlined plans for new spending on things like free school lunches, the government continued to withdraw its savings.
This policy seems to reflect a well-established Russian belief: no matter how bad things are today, it can always get worse. Tax payments have accumulated as collateral against future shocks – such as tougher sanctions or even lower oil prices.
The government and state companies – the state has a majority in six of the top 10 companies on the Russian stock exchange – are not spending in the hope that the economy and tax base will grow on their own.
Economists also point to lower private sector investment as a reason for the slowdown in growth, due to fears that the future in the local economy or global commodity prices may be worse than the present.
The outbreak of the Corona virus in China looms over the Russian economy, although the country is largely cut off from problems of the industrial supply chain because its industrial sector is so little. Russia has reported two cases of infection inside the country.
Instead, the threat for Russia comes with lower oil prices. In recent weeks, the national currency exchange rate, the ruble, has decreased as China recorded more viral infections.
The faltering economy is inconsistent with Russia’s political image at home and abroad, as a global power in good health. Geographically, the country grew with the annexation of Crimea in 2014. But even with its interference in elections and military intervention in Syria and Ukraine, the Russian federal budget has remained at its basic level, or inflation rate, since 2014.
Oil profits instead went to the National Bank fattening the pig, a reserve called the National Social Welfare Fund. The mega account this winter reached its goal of accumulating an amount equal to 7 percent of gross domestic product, or about $ 125 billion.
To enhance these reserves, the government routinely integrated budget tax revenues based on artificially low assumptions of the world oil price, while providing surpluses instead of spending. The balance is now balanced at oil prices below $ 50 a barrel, while Brent crude, a global index, hovers around $ 60.
“They were and still are afraid of any upheaval on the outside side – whether it’s due to trade wars, low oil prices, or sanctions,” said Vladimir Tikhumirov, chief economist at PCS Global Markets.
With this base in place, the short periods of high oil prices in recent years have done little to stimulate growth. Each additional dollar per barrel of oil price adds about two billion dollars to Russian tax revenues – but it only becomes an additional filling in the Kremlin pillow against a possible downturn in the future.
“Russia is moving from a place of high dynamic growth, high inflation rates to something similar to Eastern Europe,” said Vladimir Usakovsky, chief economist of Russia at Bank of America.
Private investors are reluctant to pump money into the Russian economy, but are more willing to send money elsewhere. For most of the years after the Soviet collapse, Russia left more money than many investments, usually tens of billions of dollars annually. The Russians, like their government, are hedging their future decline by placing cash in dollar bank accounts, in foreign real estate or foreign investment.
Last year, the Russians moved $ 26 billion outside the country. “The private sector has a strong demand for foreign assets,” said Sofia Donuts, Russia’s chief economist at Renaissance Capital and a former economist at the central bank.
There is a silver lining in this economy: for decades, rampant inflation was the scourge of the Russian economy after the collapse of the Soviet Union, but falling wages, low real wages, or adjusting inflation, made price rises under control. The result, Mr. Usakovsky said, is that Russia has moved to “modest risks, low inflation, but less growth as well.” In the boom years of Mr. Putin’s long two-year rule, from 2000 to 2008, the economy expanded at a rate of 7 percent annually.
Lack of private sector investment has a short-term benefit for investors as well. Instead of recycling profits in its business, the Russian minerals and oil companies paid off debts, then recently paid big dividends, raising share prices. The Russian stock market became the second best performing market in the world last year, rising by 40 percent in dollars.
Investors were also chanting the possibility of higher corporate profits with lower borrowing costs due to lower inflation. The central bank cut interest rates five times last year. The Reference rate It is now 6 percent.
Officials have noted new rules to prevent graft in the bureaucracy because they have slowed payments under the stimulus plan announced last year, and say the money will come this year. January has already seen an increase in spending.
Russia’s economy is $ 1.7 trillion now Ranked 11th In the world as measured by gross domestic product, which is the broadest measure of a country’s economic activity, between Canada and South Korea.
Donuts said that the policy of removing reserves in the midst of geopolitical tensions and sanctions has cost her growth, but left the government in a good position to change the balance.
“The sustainability of government financial resources has been the focus of attention and will be in the foreseeable future,” she said. “For six years, fiscal and monetary policy has been very tight.”
She noted that the Kremlin has spent lavishly before. Donuts pointed out that public sector spending on stadiums, roads and railways before the 2014 Winter Olympics and the 2018 FIFA World Cup.
Since Russia launched a more assertive foreign policy in 2014, the economy has grown at a rate of about 0.7 percent annually, including two years of recession. Most economists say that, given the well-educated population and abundant resources, it can grow faster.
“There is one thing you can definitely say,” said Ms. Donuts. “This is not the likely growth of the Russian economy.”