Russia’s New Stagnation

PARIS – In early November, the Russian government released its latest macroeconomic forecast. It could not have been an easy decision: Whereas President Vladimir Putin and his government campaigned in 2012 on a promise that the Russian economy would grow at 5-6% per year during his six-year term, the growth rate is now expected to average just 2.8% from 2013 to 2020.

Minister of Economic Development Alexei Ulyukaev explicitly acknowledged that achieving the targets set by Putin “will take longer.” In some cases, that means much longer. For example, in May 2012, Putin promised to increase Russia’s labor productivity by 50% by 2018; the current forecast does not envision this outcome even by 2025.

For independent observers, the ministry’s grim forecast comes as no surprise. Judging by low stock prices and high capital outflows, investors were already betting against high growth rates. Now Putin and Prime Minister Dmitry Medvedev are pessimistic as well. Medvedev, who had been publicly forecasting 5% annual growth as recently as January, told foreign investors in October that this year’s growth rate would not exceed 2%.

Previously, the government blamed the country’s economic problems on the global slowdown. Today, that argument makes little sense. The global economy – and the US economy, in particular – is growing faster than expected, and world oil prices are above $100 per barrel.