IMF has good reasons for announcing that Russian economy is facing the onset of a recession

Late in April 2014,  Head of  International Monetary Fund in Russia  Antonio Spilimbergo officially  announced  that  the  Russian economy had  entered  a recession  phase.

Additionally,  another   downgrade  of  the IMF’s projection  of  Russia’s GDP growth  rate in 2014 to 0.2%  from 1.3%  y-o-y, and  to 1% from 2.3%  y-o-y  in  2015. 


Furthermore, the IMF Head  also  noted  that  the Russia’s growth  projection  is  at  risk  of  being  revised  towards  further  downgrade.


As  a  reminder,  to date,  Russia’s official  authorities  haven’t  yet   recognized  the  onset  of  a  recession.  For  instance, Minister of  Economic Development  A. Ulyukayev  noted  in the middle of April that Russia’s  GDP  grew up 0.8% in Q1 2014, whereas, net of the  seasonal  factor, Q1 2014 saw  a  decline  of 0.5%  relative  to the corresponding  period of 2013. Previously, the  Federal State Statistics Service (Rosstat)  published  the  results  of revised  economic growth rate in 2013, which show  that   since Q2 2013 the Russian economic growth  has  been  accelerated, not  falling.  Additionally,  it  was  pointed out  that  the  revision of  data  was  based  on  the  base  fact, in other words,  the GDP growth  figures  depend  on  a  compared  period.  


At the same time, in our opinion, the situation in the  Russian economy  isn’t  driven  by overall GDP growth rate figures, but  rather  the dynamics  of its components, namely the structural component, the foreign trade component , and the  cyclical component.  In particular,  analysis of  changes  to  the  structural component  of  economic growth rate in  Russia which  is  driven  by  fundamental  growth  factors (spare  production  capacities and  labor force, and, if the foregoing  are unavailable, the Total Factor  Productivity ( TFP)), shows that   this  component , according to our  estimates,  dropped to 1/8%  from 5% (see the figure below)  in the  period of 1999 thru 2014 (given  the  most  resent  official  projection  of the Ministry of Economic Development, namely  a  1.1% growth relative  to 2013).



- GDP actual growth rate     - GDP growth rate’s structural component

* Ministry of Economic Development’s socio-economic development projection in Russia. Data source: Gaidar Institute’s  estimates  based on the data  supplied  by the  Rosstat and IMF.  
Fig. 1. Russia’s GDP actual growth  rate  and its  structural  component, % y-o-y, 1999-2014*  


The  decline  in  the  structural  component  of  the  economic growth rate in Russia can in our  opinion  be  explained  by  lack of  growth  in  labor  and  capital (in other words, the  structural  component  changes   only  through  changes  to the TFP) and  the  Russian economy’s entrance into a  new business  cycle  after  overheating  ended  up  in  the crisis of  2008-2009  (it  should  be noted  that  the foreign  trade  component  driven  by  deviation  of the  actual price of crude  oil  from  the long-time average annual, in 2013 and 2014, , is  about  1% while  the  cyclical  component  is  -1.98% or -1.59% respectively,  according  to our  estimates).


Therefore, in our opinion, in  identifying  a recession  in the economy,  one  should  rely not only  upon  official  statistics, but also  changes  to  the  growth  components  driven  by both  the above listed  growth  factors and  specific  factors  (external  trade  conditions  is  the  factor  for  Russia).  Analysis  of the  dynamics  of such  components  of growth in Russia shows  that  the  Russian economy  has been ailing  for   at  least  several  years (rather than  quarters).


Maria Kazakova, Ph.D. in Economics, Deputy Head of International Center for Budget Sustainability Study