There Is a Relatively High Probability That Russia’s Economy Would Fall Into Recession In 2015

Last week, Fitch Ratings - a global rating agency - released to the mass media its forecast of the growth rate of Russia's national economy in 2015.

According to Fitch Ratings, next year we can expect a decline by 1.5%, and in 2016 – zero growth. Besides, as noted by Fitch Ratings, when oil prices decline by 20% on their basic scenario level (in other words, price of oil in 2015 should amount to $ 83 per barrel, and in 2016 – to $ 90 per barrel), Russia's GDP in real terms will drop by an additional 1.3%, and the cumulative RF GDP decline in 2016 will amount to 2.3%. It should be noted that as early as the end of November 2014, Standard & Poor's released its forecast that Russia would already see the onset of recession in late 2014.

Fitch Ratings' forecast is generally similar to the predictions of other experts. Thus, in particular, the World Bank expects Russia's GDP to drop in 2015 by 0.7%.

In Russia, the expert community is likewise pessimistic about the prospects for growth in the national economy in the nearest future. Thus, recession in 2015 is also expected by the Bank of Russia; by Sberbank's Chief Executive Officer Herman Gref; and by Russia's ex-Minister of Finance and currently head of the Civil Initiatives Committee Alexei Kudrin.

Indeed, in our opinion, at present there are no reasons to believe that Russia will be able to avoid recession in 2015. The forecasted movement of the economic growth rate is plotted not only on the basis of the movement of world prices of oil (a factor that, without any doubt, greatly contributed to the high rate of growth displayed by the RF economy in 2000–2007) and with due regard for the prospect of the economic sanctions being lifted, and the geopolitical situation improving over the course of next year. Economic growth is in the main determined by fundamental production factors, namely labor and capital, which currently are displaying no growth. No new growth factors are as yet visible either. As far as situations like this one are concerned, the Solow economic growth model implies that growth occurs only due to the upward movement of the total factor productivity (TFP) index - that is, the effects of the already existing factors, as well as the overall quality of the investment climate and institutional environment. According to the Gaidar Institute's estimations, in 2015 total factor productivity in the Russian economy will display zero growth, with no prospects of its improvement in the nearest future.

We do not think that the forecasts of Russia's GDP's decline in 2015 are unduly pessimistic. As for the influence of such forecasts on the expectations of economic agents, it is obvious that shifts in these expectations in one or other direction are caused not only - and not so much - by predictions of economic slump or growth in the year to come. One may argue as to the scale of the forthcoming recession, but on the whole it is clear that the collapse of oil prices in late 2014 unmasked all the hitherto hidden problems in Russia's national economy.
Thus, the authorities are now faced with the task of undertaking all the necessary measures in order to prevent any further deterioration of the already painful situation, and to move on to the trajectory of long-term economic growth.

Maria Kazakova – Candidate of Economic Sciences, Head of the International Budget Sustainability Department