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Russia Economy – February 2013

Source: OPEC 3/12/2013, Location: Asia

According to the Ministry of Economic Development, real GDP growth slowed down in January-November 2012 to 3.5%. For the year as a whole it is estimated that Russian economy might have expanded by 3.7%. Growth slowed in the second half of the year due to the base effect, the effect of drought over the summer and weaker global activity. Retail sales volume growth slowed to 4.4 y-o-y in November. Investment grew by only 1.2% on an annual basis. Industrial output rose by 1.9% in November.

The Duma (Parliament) approved the budget with no changes to any of the main budgetary aggregates or assumptions about macroeconomic trends from the revised draft of late September. The Budget assumes real GDP growth of 3.7% and inflation at the end of 2013 of 5-6%. Revenue is projected to grow by 7-8% in nominal terms and to decline slightly as a share of GDP to less than 38%. Spending is expected to increase to more than 38% of GDP. Spending is being kept in check largely because transfers to regional budget are being cut. Defence is the fastest growing category of federal budget spending, rising by 15% in 2013.

In a new study, “Diversifying Russia”, the European Bank for Reconstruction and Development (EBRD) has provided a timely checklist of the challenges for Russia’s economic development at the beginning of the second presidency of Vladimir Putin. Russia has proven hydrocarbon reserves sufficient to maintain production past current levels for only 20 years. Russia needs to diversify and with much more urgency than other large hydrocarbon producers. Despite innovative projects in recent years, the Russian economy remains relatively less diversified economy. With a falling labour force, immigration is essential.

The report analyses that the problem is restrictions on in-immigration of skilled workers while it is relatively easier for unskilled labour force to obtain work permission. A lack of strong intra-industrial relationships at the international level has been identified a major weakness of Russian economy in this report. India and China both are deeply involved in an international division of labour based on micro-specification, and both countries can boast of flagship companies making technologically highly complex components for global industries like the car industry.

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