Recession of the Russian economy: a lagged panic

Feasibility of increasing the government budget expenditures as a measure of economic growth incentive in Russia should have been discussed at least two years ago.

In our estimates, back in 2010-2011 the outputgap, reflecting the percentage deviation of actual GDP fr om its structural (or trend) value was close to zero. What does it mean?

At the zero (or close to zero) outputgap the economy is on the verge of production facilities limit, wh ere any further growth is possible only in case of major economic reforms. The implementation of such reforms would allow to diversify the economy, having decreased its dependence on raw materials exports and increase labor productivity, as it is now so often mentioned in the experts' community.

In its turn, the short-term measures of domestic demand incentives, which include the budget expenditures extension, in such a situation (i.e., at the time when all available factors of production are involved) are boosting the inflation, rather than the production growth. The situation is also aggravated by the fact that the contribution of the situational component of the Russian GDP growth rate, based on high energy prices in 2010-2011 was not so great as in the 2000s.

Therefore, the nowadays panic regarding the probable economic recession in Russia in this autumn is somewhat surprising. In our opinion, the panic about the prospects for economic growth should have arisen much earlier, and plans to move to a new trend of a long-term growth within six months look more than optimistic to Russia.

M.V. Kazakova, Ph.D. in Economics, Head of Economic Development Department