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Russia: Recession Not Excluded Anymore

Published: July 22, 2013; 19:57 · (Vindobona)

Above all, Russia suffers from a shrinking industrial sector and a decline in foreign direct investments.

Russia: Recession Not Excluded Anymore / Picture: ©

Until now, Russia was almost unaffected by the economic slowdown in Europe. However, economists think that the economic deceleration in Russia will continue. In the best case, Russia´s economy will stagnate this year. In the last months, the forecasts had to be revised several times.

In spring, Russian economists forecasted that the Russian GDP will grow by 1.6% this year. In any case, the economic growth of this year will be substantially below the growth rate of 2012. Last year, Russia´s economic growth still reached 3.6%.

Russia´s economic downward trend is mainly due to the unpredictable economic policy, Russian experts of the Moscow Higher School of Economics stated. In the first half year of 2012, the industrial production grew by 3.1%. By contrast, in the first six months of 2013, the industrial production only increased by 0.1%. Russia´s construction output even was down by 8%.

What is more, the capital outflow and the declining foreign trade surplus are regarded as major problems. Total investments were down by 3.7%. According to the Russian Ministry of Economics the expected capital outflow will reach about € 40bn. At the beginning of the year, a capital outflow of € 25bn was forecasted.

Besides that, higher import prices have caused an increase in inflation.

Furthermore, wages increased despite declining labor productivity, the economists of the Moscow Higher School of Economics criticized. At the moment, Russia has no more economic instruments to increase the income. The only alternative would be to increase public debt, the economists concluded.

In total, Russia´s GDP will not grow this year. In the worst case, Russia even faces a recession. Igor Nikolayev, head of the Institute for Strategic Analysis, stresses that the forecast is based on “negative investment dynamics”.

Russia´s real economy is suffering from an outdated industrial sector. Moreover, the current recession in Europe is another drag for the export-oriented industrial sector.