The Economy is Underpinned by Consumer Demand and Growth in the Trading Sectors

In 2014, the macroeconomic situation is characterized by gradual slowdown of development. In September 2014, under the effect of growth in credit resources, limitation of companies' access to borrowing of funds on global financial markets and prevalence of high geopolitical risks a year-on-year drop of 2.8% in investments was observed.

The situation is further complicated by growth in the capital outflow -- in January-September 2014 it amounted to $85.2bn which exceeded 1.93 times over the respective index of the previous year – and a 50% drop in the volume of direct foreign investments.

The main factor behind the positive trend of development of the Russian economy is still households' consumption, however, the contribution by households and state management to the GDP dynamics is getting much weaker. The dynamics of the consumer demand is greatly affected by slowdown of growth rates of real income, growth in the level of load on households as regards repayment of loans and higher inflationary expectations with preservation of a high share of conversion of incomes into foreign currency. In September 2014, real disposable cash income of households increased by the mere 0.6% year-on-year (due to growth in the share of social payments and revenues from property in households' cash income). Real wages which account for a larger portion of households' income decreased in real terms by 1.0% year-on-year in September 2014.

In 2014, the dynamics and pattern of economic growth are determined by advanced growth in trading sectors (mining, manufacturing and agriculture) – 101.7% on the basis of the results of H1 2014 – as compared to growth in non-trading sectors at the level of 100.4%. A positive contribution to the dynamics of economic development is made by agriculture: in September 2014 the output in that sector increased by 16.6% as compared to September 2013, while in January-September 2014, by 7.7% on the respective period of the previous year.

In 2014, the quarterly dynamics of mining is characterized by some acceleration. In January-September 2014, the mining index amounted to 101.0% as compared to the previous year (102.4% in September), including in production of fuel and energy primary products – 100.9% (102.5%). As compared to 2013, in January-September 2014 growth in production of oil amounted to 1.2% with growth of 5.1% in processing volumes. A speed-up of growth rates of export of oil products with a reduction of volumes of export of crude oil was justified by advanced growth in production of oil products. As compared to January-September 2013 and September, production of gas fell by 5.4% and 16.9%, respectively.

It is to be noted that low growth rates of the Russian economy point to the diminishing potential for development. The evidence of the above is the fact that production capacities are loaded at the pre-crisis maximum, there are no large-scale investments and the level of unemployment is at the record-low level.

Olga Izryadnova, Head of the Structural Policy Department