The financial crisis of 2008-09 demonstrated several weak elements of the Russian economy, according to Sergey Aleksashenko, the director of macroeconomic research at the Higher School of Economics in Moscow.
Speaking in the second session of the Fund Strategy Investment Summit, being held in St Petersburg, Aleksashenko said that of the 25 largest economies in the world, Russia in 2009 had the steepest year-on year and quarter-on-quarter GDP decline. In the fourth quarter of 2008 and the first quarter of 2009, Russian GDP fell 15% and 20% respectively.
While there has since been a recovery, primarily lead by rising exports, Aleksashenko says this has now been exhausted and he predicts a period of stagnation for the economy from here.
A dependence on commodities and the low competitiveness of Russia’s domestic industries are the main barriers to sustainable long-term growth, says Aleksashenko. (article continues below)
“Economic institutions in Russia are among its weakest,” he says. “These weak institutions are one of the main barriers to a recovery but the government is not doing anything about them.”
While Russia’s dependence on oil was a large factor behind why the economy suffered so badly during the financial crisis, Aleksashenko says the real reason was overheating, caused by growing credit and intensive foreign borrowing.
“In three-and-a-half years corporate debt increased by five times,” he says. “It was this debt that fuelled Russian growth before the crisis and the result was high inflation and a fast rising equity market and real estate prices.”
This pre-crisis overheating and blocked institutional reforms have increased the dependence of the economy on the cyclical sectors, namely construction, trade and finances, says Aleksashenko.
“Even the government does not foresee a bright future, envisaging 4% growth in coming years, which is well below pre-crisis numbers,” he adds.
Indeed Olga Trofimenko, an associate professor of the St Petersburg University, says the level of uncertainty in Russia is too high to make sure forecasts for the economy.
Also speaking in the Summit, Trofimenko argues the crisis proved Russia is extremely dependent on world markets, and in particular the oil market.
“The crisis underlined the fact that even a country that manages one of the world’s largest hydrocarbon resources needs global financial markets for funding its largest corporations,” she says.