The Economic Development in 2018 will Depend on the New Government’s Economic Policy

The 2017 economic results were in line with experts’ expectations and forecasts which they made throughout the year.

In 2017, actual growth rates of investments in capital assets happened to exceed the expectations which fact can be explained by the business’s readiness to enter the active business cycle stage. However, it is necessary to take into account the fact that adjustment of final results may take place.

As regards growth factors, they can be divided into the following three groups: structural, foreign economic and cyclic.

In 2017, the structural growth rates remained rather low (maximum 1.5%). It can be explained by a lack of explicit economic efficiency growth and continued reduction of households’ economic activities.

The foreign economic component failed to contribute to promotion of the growth rates, either. Though oil prices exceeded the expectations, they lagged anyway behind the level the Russian economy got accustomed to in the 2000s.

The main factor behind a 1.5% economic growth was the dynamics of the business cycle whose negative stage observed fr om 2013 came to an end and the cyclic growth began: the economy approached the state of readiness for economic growth. It remains to be seen whether the government’s policy is able to underpin the positive business cycle stage, otherwise the economy may get stuck at low growth rates.

Accordingly, in 2018 the economic development will depend on the economic policy of the new government which is to be formed after the presidential elections. At present, it is impossible to forecast anything until any specific outlines of that policy become known.

It is possible to cite a number of factors which may lim it the development of the economy in 2018. First, the effect of the positive phase of the business cycle amid lack of economic policy supportive measures has ceased. Second, there is no observable effect on the part of the foreign trade: no growth in commodity prices is expected. Third, there are no drivers of growth in the agriculture. During the past two years, the agrarian sector demonstrated good output results amid favorable climate conditions and it is less likely that it will be able to show better results than before for three years running.

To underpin economic growth, it is necessary to start structural reforms as early as next year. it suggests redistribution of the budget expenditures from non-productive budget items to productive ones, denationalization of the economy and liberalization of the foreign trade regulation (in particular, the customs and foreign exchange control).

Sergei Drobyshevsky, PhD. (Economics), Academic Director of the Gaidar Institute