World Bank’s pessimism about economic growth prospects in the Russian Federation is quite predictable

On September 25, 2013, the World Bank (WB) downgraded its projection for Russia's GDP growth in 2013 to 1.8% fr om 2.3% (the latest projection was made in June 2013). In 2014 the WB projects the Russian economy to grow 3.1% against previous 3.5%.
As noted in World Bank's Russian Economic Report 30, the Russian economy seems to operate close to its current capacity lim it, because the current model of growth based on domestic demand expansion has sputtered out. To this end, the WB recommends that the Russian Government should revise its economic policy measures aimed at economic simulation.

In should be noted that the WB was not alone in having downgraded the forecast figures for Russian economic growth. As shown in fig. 1, the IMF downgraded (in July 2013) its projection for economic growth rates in Russia from 3.4% in 2013 and 3.8% in 2014 (projected in April 2013) to 2.5% and 3.3% respectively.


Data source: IMF, World Economic Outlook (various issues).

Fig. 1. Dynamics of IMF's projections for GDP growth rates in Russia in 2013-2014 over the period of January 2012 thru July 2013, as percentage of the previous year.


It is fair to be recalled that Ministry of Economic Development's baseline projection for GDP growth rates in Russia is even worse: according to the Ministry of Economic Development, Russia's GDP is estimated to grow by 1.8% in 2013 against the previous year, and by 3% in 2014.


In our opinion, international organizations' pessimism about prospects of economic growth in the Russian Federation is quite predictable and should be no marvel. As noted above, Russia's GDP is close to its growth potential (output gap has reached almost zero value).


As noted in the foregoing WB's report, the level of capacity utilization is currently close to 80% 80%, and the labor market has been running short of labor force while unemployment shows a low level (5.3% in July 2013, according to Rosstat's data). Under the circumstances, without serious promotion of fundamental growth factors the economy of our country may become even more vulnerable to external economic movements, including not only primary commodity markets, but also cyclic movements of the world economy.


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