Page 23 - RusRPTAug21

Lying behind this programme is an attempt to address Russia’s deep structural problems. The economy boomed in the noughties as Russia went through a phase of fast catch-up growth and there was even talks of overheating. However, petro-dollar driven catch-up growth was more or less exhausted by 2011 when growth started to slow, even though oil prices were still over $100. By 2013 that growth was completely exhausted and economic growth went negative. Since then no new model has been developed and no serious attempt to fix Russia’s economic problems has been made until now.
All those problems were made worse by the 2014 annexation of Crimea and the resulting sanctions. The International Monetary Fund (IMF) estimates that sanctions have shaved 0.2% off Russia’s growth every year between 2014 and 2018.
The government has amassed a huge amount of money, around $600bn in gross international reserves (GIR) as of July, but it has been reluctant to spend it. It has also been reluctant to increase debt, as that would expose Russia to Western pressure. The result is the economy is growing way under its potential given the size of the reserves it has at its disposal.
Economists remain sceptical that the Kremlin’s national project spending will appear, and if it does whether it will be efficient. Many of the biggest projects will be carried out by the largest state-owned enterprises (SOEs) and VEB.RF (formerly Vnesheconombank) has been reformed into an unofficial ministry of infrastructure, but few have confidence either can spend money well.
“Russia’s gross capital formation has been enough to increase its capital stock for some time now, but it is hard to foresee a sustainable acceleration in the rate of capital accumulation,” says Korhonen.
Korhonen’s assumptions about the capital stock’s growth rate have been revised down in his new assessment of Russia’s long-term growth potential.
“These three trends in combination suggest that Russia’s growth potential, even under the most favourable scenarios, is only about 1.5% p.a. over the next two decades. This is substantially lower than the growth rates during 2000-2008, when Russia’s real GDP expanded on average by almost 7.5% p.a. Moreover, most risks to the growth scenarios are on the downside. While it is uncertain how long the negative effects of COVID-19 pandemic will persist, the waning share of Russia’s contribution to the global economy is certain,” says Korhonen.
2.8 Watcom catching up with 2019
Russia’s Watcom shopping index that measures foot traffic in the capital’s leading malls continues to close the gap on the pre-crisis 2019 levels but is still running at least 10% behind that level, according to Watcom’s latest numbers.
The index, which uses 3D cameras in malls to measure traffic in real time, posted 387 in the 26th week of this year (the first week of July), which was
23 RUSSIA Country Report August 2021 www.intellinews.com