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Russia Moving From Recession To Stagnation, EBRD Economist Says

  • RFE/RL

Russian economist Sergei Guriyev now lives in self-imposed exile in London where he works for the European Bank for Reconstruction and Development. (file photo)

Russian economist Sergei Guriyev now lives in self-imposed exile in London where he works for the European Bank for Reconstruction and Development. (file photo)

As Russia touts signs of renewed growth after a long recession, the self-exiled former Kremlin adviser who is now chief economist at the European Bank for Reconstruction and Development (EBRD) says his homeland's prospects for recovery in fact remain bleak.

Senior Russian officials have said they expect the economy to start recovering from recession next year, with the Economy Ministry predicting 0.8 percent growth in 2017 after a projected decline of 0.2 percent this year.

But Sergei Guriyev, a prominent economist who left Russia in 2013 amid fears of a politically motivated criminal prosecution, says the country's economy is not in a process of recovery but of "transition from recession to stagnation."

"The drop in gross domestic product [GDP] has ended, moving now to zero or very slow growth," he told RFE/RL's Russian Service in a telephone interview in London, where the EBRD is headquartered. He predicted that, if there is positive growth, it will be only about 1 percent a year.

"That is a process economists call stagnation," Guriyev said.

Guriyev, a former rector of Moscow's respected New Economic School, served on Kremlin advisory bodies during Dmitry Medvedev's 2008-12 presidency and has been a member of state lender Sberbank's supervisory board.

He left Russia for France in 2013, amid concerns he could be targeted for prosecution during a crackdown on liberal-minded members of the Russian elite critical of President Vladimir Putin's authoritarian policies.

Budget Cuts

In a sweeping review of Russia's economic situation, Guriyev also told RFE/RL that conditions for ordinary Russians are likely to remain difficult in the months ahead as the government continues to cut spending in an effort to cope with loss of revenues due to low world prices for oil, a key export. The spending reductions mean less money is injected into the economy through government contracts, contributing to the sluggish pace of economic activity.

"Russian authorities are forced to make budget cuts in real terms, affecting almost all areas of the budget, including defense spending," Guriyev said. "[There is even] currently discussion of large-scale reduction of the state program of armaments modernization" -- a multibillion-dollar plan to overhaul much of the military by 2020.

The Russian economy has been hit hard by low oil prices since 2014, when the price of oil plunged to under 50 dollars a barrel, just half the price Moscow traditionally has counted upon to fund the national budget. The price of oil, which fell again to under 40 dollars a barrel in 2015, hovers around $46 a barrel today.

Guriyev said Russia's economic slowdown has been further exacerbated by a lack of economic reforms within Russia and by Western sanctions imposed in response to Moscow's annexation of Ukraine's Crimean Peninsula in 2014 and its backing for armed separatists in eastern Ukraine.

"The situation, to put it mildly, is not easy," he commented.

Feeling The Squeeze

Ordinary Russians have felt the squeeze directly in their pocketbooks.

Household income data from August revealed an 8 percent drop in household income in Russia compared to the same time last year, Guriyev said. That comes as prices have moved steadily upward, with inflation regularly hitting the double digits in recent years.

Guriyev said that Russia's government has managed to keep the economy afloat only by regularly dipping into a rainy-day fund that accumulated from excess earnings when oil prices were high. However, he warned that, if oil prices do not rise and sanctions remain in place, the government will have to dig deep into other savings, too, including a fund created to plug deficits in the pension system.

"In this scenario, the Reserve Fund will be exhausted later this year or in the first half of next year," he said. "The consequences are that the government will be forced to start spending the National Welfare Fund."

Guriyev said that the government has already sought to prepare the population for such an eventuality by announcing that pension-system savings could be spent on financing the current account deficit in 2017 and 2018.

Investor Exodus

Amid the gloomy outlook for the Russian economy, the economist sees one sign that might spell at least a little relief for the country's hard-pressed citizens. He said that while inflation remains high, "the central bank has done a lot to reduce it, and we see that this year's inflation will not be in the double-digits."

But he says prospects for economic recovery continue to be dimmed not only by low oil prices and sanctions but by a lack of new investment. Domestic capital has shrunk with the economic slowdown and foreign investors have largely fled the country since relations between Moscow and the West soured over Russia's interference in Ukraine.

Guriyev said that Putin's oft-stated goal of curbing reliance on the West by reorienting Russia's economic cooperation toward China and other countries in Asia does not offer a remedy.

"There are lots of signed letters of intent, summits, state visits and statements," he says. "But slimmed-down Western investment has not yet replaced by the East. Unfortunately, the total foreign direct investment in Russia has decreased significantly."

Written by Charles Recknagel based on an interview conducted by RFE/RL Russian Service correspondent Natalya Golitsyna in London