Crisis Phenomena in the Russian Economy are Justified both by External and Internal Factors

Today, during the big press-conference President V. Putin named external factors (in particular, a drop in global oil prices) behind the crisis phenomena in Russia in conditions of insufficient diversification of the Russian economy.

According to President V. Putin, in case of unfavorable development of the situation serious measure will be required; the economy will have to adapt to low prices on oil. For adaptation, V. Putin gave the period of maximum two years in case of the worst-case scenario and stressed that "a return to the positive area and subsequent growth are inevitable". So, as early as 2017 Russia's economic growth rates should be positive.

One cannot, but agree with the President that the economy should adapt to a new, lower level of global prices on energy carriers. It is to be noted that experts point to import substitution and growth in competitive domestic goods in a situation of depreciation of the ruble exchange rate as potential sources of recovery growth of Russian GDP. According to President V. Putin, growth in demand on energy resources as the global economy grows is a factor of growth of the Russian economy. However, as was state before, the above factor is not a fundamental one for long-term growth. In addition to the above, by means of import substitution alone one can hardly achieve positive growth rates within such a short period of time in conditions of undiversifiable economy. Orientation on growth in demand on energy resources means preservation of dependence of the economy on minerals, rather than modernization which according to the President is urgent.

Certainly, with Russia being highly vulnerable to the dynamics of oil prices a sudden drop in oil prices late in 2014 hit hard the Russian economy. At the same time, in our view, it is incorrect to assert that the crisis is caused by external factors alone. External factors, including tense geopolitical situation and serious worsening of trade conditions only complicated and identified those domestic problems which existed in the economy. In particular, the low extent of diversification of the economy is one of three domestic factors which resulted in aggregate in the present complicated situation which deteriorated with worsening of the foreign economic and political situation.

So, in our view, in the existing conditions recovery growth will take place by 2017, but its rates are unlikely to exceed 1% and, most probably, they either amount to the zero or show weak positive dynamics. To achieve high rates of growth, serious economic policy measures will be required and that will take quite a lot of time.

Maria Kazakova, PhD (Economics), Deputy Head of the Department of Research of Budget Stability