Here Is Why Russia’s Economic Future Appears Dim


Russia has lowered its economic outlook over the next two decades, showing that it is not on pace to expand at the same rate as other emerging countries, Reuters reports. Alexei Ulyukayev, the Russian economy minister, has said that Russian economic growth over the coming years is expected to average out to approximately 2.5 percent, down from a previous 4 percent projection by the ministry and also substantially lower than the 5 percent figure once espoused by Russian president Vladimir Putin. This would place Russia significantly behind the other BRICS countries in terms of expected growth rates. It would also put the country below the average global growth rates, which are expected to be in the neighborhood of 3.5 percent during the time period.

The troubling fact of the matter is that there doesn’t seem to be much that the government is considering to do about the problem. In a fashion not atypical of the Russian government, they have decided that complacency is an acceptable outcome. The central bank of the country has been more interested in fighting inflation than in promoting growth, which is actually part of the problem. Without substantial economic reforms, it is unlikely that growth rates will surpass the now lukewarm projections.

Still, this does not mean that some companies will not be interested in investing in Russia. An executive from the French bank Societe Generale said that Russia remains an attractive option to some investors because its growth rates will probably outpace those in the rest of the eurozone and because the country lacks some of the banking regulations that hamper business transactions in other parts of the region. Ironically, the bank was recently forced to fire the head of its Russian division after allegations of bribery surfaced.

One problem that the Russian numbers do not account for is that oil prices may decline as American natural gas and oil exploration initiatives begin to deliver increased levels of production. With large sectors of the Russian economy dependent on exporting fossil fuels, a worldwide drop in prices would significantly hurt the country’s economic capabilities. Not only could this have a crippling effect on Russia’s energy companies, but it could also cause ripples throughout the country’s economy, leading in turn to decreased government revenues as well.

Even if oil prices do remain stable, accounting for inflation, Russia still faces a number of problems before the country can realize a brighter economic future. A collection of dated laws, often entailing great deals of red tape and depressed business transactions, while corruption remains a rampant force that siphons off large sums of money. In order to truly witness an economic boom, the country will have to undergo a series of reforms that none of those in power right now seem to be able to champion.

Don’t Miss: Q3 GDP Growth: Pleasant Surprise But the Economy Needs More.