04 December 2018, 22:47 / Economics Exclusively by subscription

The authorities will not have time to implement Putin’s plan

The chance to reach the world average GDP growth rate will appear only by 2028 Tatyana Lomskaya The Russian economy can catch up with the global economy - but not nearly as quickly as President Vladimir Putin expects / Andrey Gordeev / Vedomosti

The Russian economy can catch up with the world - but not nearly as quickly as President Vladimir Putin expects, the World Bank points out in the report “The Russian Economy: How to Maintain Stability, Double Growth and Halve Poverty?” Having won the election, Putin signed a new May decree with ambitious goals that the government should achieve by the end of his fourth presidential term: Russia should become one of the five largest economies in the world in terms of prosperity, economic growth rates should be ahead of the world average, and the poverty level of the population should be halved . Not all of these tasks will be achieved on time, warn World Bank economists.

The easiest way, from their point of view, is to cope with poverty. In 2017, 13.2% of Russians had incomes below the subsistence level; in 2024, this figure should remain at 6.6%. To comply with the decree, GDP must increase by 4.4% every year - even the Ministry of Economic Development does not expect such a pace. And with growth of 1.5% - the same as last year - poverty will drop to just 10.7%. But even at such rates of GDP growth, the authorities can fulfill the task if they make the social support system more targeted, the World Bank believes. To do this, it is necessary to redistribute about 0.27% of GDP per year in favor of those most in need, and taking into account the fact that only 20% of the aid intended for them reaches the poor in Russia - 1.35%.

According to calculations by the World Bank and the Ministry of Finance Research Institute, Russia annually spends about 3% of GDP on social payments - more than most countries with economies in transition. However, only 25 kopecks reach the truly poor. from every ruble allocated for their targeted support. So far, efforts to introduce targeting have not been very successful, INSAP RANEPA analysts pointed out: only 34% of programs managed to achieve at least some increase in benefits; in most cases, the regions use the savings not to increase assistance to those in need, but to other needs.

The Russian economy has nothing to rely on

The population will think more about their wallets and this will affect their attitude towards the authorities, experts say

But the government is unlikely to be able to achieve the task set by Putin to accelerate economic growth, according to the World Bank. World GDP, according to his forecast, will grow at a rate of about 3% annually, and Russian GDP until 2020 inclusive - by 1.5–1.8%, significantly lagging behind developing countries (4.6%). Russia will overtake high-income countries in growth rates only in 2020. Many risks remain: the expansion of sanctions, the aggravation of trade contradictions, the sharp tightening of global financial conditions, and the acceleration of inflation.

Potential GDP growth rates are slowing around the world, but more so in Russia due to slowing productivity growth, slowing investment and declining fertility, the World Bank says. Next year, due to a shrinking labor force, GDP growth in Russia will be below the average level of developed countries for the first time in 20 years.

If nothing is done, it will slow down after some acceleration - to 1.3% in 2023, after which it will accelerate due to the influx of labor, but to a maximum of 2.5% per year, the World Bank predicts.

To accelerate GDP growth, reforms are needed, and the moment for them - the cyclical recovery of the economy - is good. Raising the retirement age will provide an additional influx of labor and could accelerate GDP growth in 2020–2028. by 0.3–0.4 percentage points, the World Bank expects. But these workers are still few, his economists believe, and an additional influx of migrants is needed: not 100,000 people, as the UN predicts, but 289,000 by 2028. In addition, it is necessary to increase the share of investment in the economy (according to the forecast of the Ministry of Economic Development, it will grow from 23% in 2017 to 34% in 2028) and stimulate the growth of total factor productivity, which will decline without reforms. All these measures together can increase the GDP growth rate to 3% only in 2028, according to World Bank economists.

The ceiling for Russian GDP growth is 1.5–2%; for greater acceleration, structural reforms are needed, the Central Bank has repeatedly emphasized. Raising the retirement age due to an increase in the number of people employed in the economy will accelerate GDP growth by 0.1 percentage points in 2019 and by 0.2–0.3 percentage points in 2020–2021. But how effective will the other government measures be, in particular the allocation of an additional 8 trillion rubles? from the budget for national projects in the fields of healthcare, education, demography and social policy, development of non-resource exports and infrastructure, time will tell, the Central Bank wrote: the main “accelerating” effect will be beyond the next three years.

In the long-term development scenario until 2024, the Ministry of Economic Development predicts that Russian GDP growth will exceed 3% already in 2021 due to the acceleration of investment growth from 2020 to 6–7%. First of all, due to government investments in the development of transport infrastructure. However, the authorities’ expectations are excessively high, S&P analysts pointed out: public investments are ineffective, and the main budget expenditures will occur in 2022–2024.

There is no guaranteed recipe for productivity growth, notes VTB Capital's chief economist for Russia, Alexander Isakov, and demographic trends for the next 20 years have been determined. The authorities can directly influence only the level of investment, and here much depends on the quality of economic policy. Capital calculations According to VTB , if the labor force is reduced, as in Russia, by about 0.5%, the economy can grow at a rate of -0.5 to 4.5% per year.

Long-term forecasts are risky: you can make a mistake not just with the growth rate, but also with its directions, notes Vladimir Bessonov, head of the laboratory for research on inflation and economic growth at the Higher School of Economics. Before predicting 10 years ahead, it’s worth looking back 10 years, Bessonov suggests: during this time, Russia experienced two economic crises - 2008 and 2014, which no one predicted. If the economic and political situation does not change, achieving 3% GDP growth by 2028 is quite realistic, he says, but there are many black swans: geopolitical tensions are growing, energy prices may fall, it is not known how events will develop after the end of the presidential Putin's term in 2024, he lists: “Russia has been stumbling on the transfer of power for centuries.”