Russia’s Economic Stagnation Is Here to Stay

The Russian economy is stagnating in almost all sectors. In other words, growth can not be achieved without deep structural reform. However, since President Putin is about to reach its fourth term since he showed a willingness to make such a reform a little, there is no reason to think that the change will be too big in the near future.

Chicago - In the beginning of 2018, the Russian economy was sluggish. This is not statistics. Russia's average annual growth rate in 2008 - 2017 is only 2%. Last year Russia's GDP growth rate was 5%, euro area 5%, and the US 3%. The growth rate of these two developed countries should be two to three percent slower than the developing countries such as Russia. And, as the Russian Ministry of Economic Affairs, the World Bank and the International Monetary Fund (IMF) allow, this low performance is likely to continue.

Because the economy is stagnant, it is only through deep structural reform that we can promote Russian growth. The unemployment rate has remained at only 5% for five consecutive years - there are few jealousies of developed countries - the number of unemployed people is small. Similarly, the occupancy rate of the manufacturing industry is almost the same as the first two peaks (2007 - 2008 and 2013). In other words, surplus production capacity can hardly be used.

On the contrary, recognizing that it is impossible to improve this situation with a positive monetary policy, the central bank lowered the inflation rate to 5% in 2017. This is the lowest Russian capitalism in 25 years. In addition to rising oil prices - unlikely prospects - Russia's only possible source of growth is productivity. This requires major reforms

To read this article from the archive, log in or register now. After entering your email, you can access two free articles each month. Subscribe now to access Project Syndicate without limit.

"Russia's defense spending is regarded as a priority issue and maintains its current high level even during the long-term economic downturn.The policy is highly coordinated with the operation of Russian special services including the use of fake promotional activities It is being done for other countries. "

The state of the Russian economy largely determined its military spending. In 2017, Russia used 30% of its budget for military and security agencies and used only 2.3% for medical care. Due to the stagnation of the economy, Russian defense expenditures in 2016 declined for the first time since the 1990s. By 2020 Russia is estimated to spend $ 41 billion on military use. This is less than what France is spending, accounting for 46% of the Russian population. In addition, the rise in costs in Syria and Ukraine could force Russia to withdraw its troops and bankruptcy of the regime. Indeed, the Russian newspaper recently revealed that the government spent only 1.8 billion dollars annually on Syrian military contractors.

After decades of Soviet economic and social stagnation, inadequate reforms in the 1990s failed to deal with strictly controlled financial systems and anti-commercial regulatory systems that led to a decline in GDP Did. In this century Russia turned to the authoritarian rule of governance led by President Putin. His regime seeks legitimacy through controlled elections, populist appeals, and foreign policy aimed at strengthening the geopolitical influence of Russia. Growth on commodity bases has restrained the economic recession period, but growth has declined again as energy prices have declined. The illegal consolidation of the Russian Crimea and the occupation of eastern Ukraine brought economic sanctions and capital flight in the west.