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Russia’s GDP Stagnation

James Boston
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Russia’s GDP Stagnation

Predictions for the Russian leading indicator for economic growth are lining up to show a further fall year on year to the month of August, this would be the third straight month in a row that this GDP growth measure has come in negative following an extended period of expansion averaging around the 1.0% level.

It is becoming clearer that the Russian economy is entering a period of stagnation as sanctions and uncertainties pile on top of an already fragile system. Last week the World Bank downgraded it’s longer term forecasts for full year growth in Russia to just 0.3% in 2015 and 0.4% in 2016, official Russian forecasts still remain at 1.2% and 2.6% growth respectively. Both the World Bank and Russia agree however that the 2014 growth rate is likely to come in at just 0.5%. One caveat attached to these already meagre forecasts is that geopolitical tensions subside over the period, a prolonged standoff or an escalation of the Ukrainian situation would lead to a further downgrading of outlook to negative.

The World Bank has noted that beyond the current conflict Russia must urgently address two areas of the economy in order to lay the foundations for a stable recovery. Lifting consumer confidence and encouraging a sustainable level of growth in private investment were both single out for mention as areas in which the economic authorities should focus. Neither of these areas will be easily addressed, it is very difficult to enhance consumer sentiment when an economy is obviously spiralling downwards, major spending decisions tend to get postponed as individuals hold on to their money in anticipation of worsening conditions. Secondly, international investment has all but dried up in this current environment so the focus would need to be on encouraging domestic investment, this however is easier said than done under the heightened risk profile that currently exists in Russia.

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