Things should be pretty rosy now in Russia. While commodity prices are not rising, they are still high. Sovereign debt is low – about 10 per cent of gross domestic product – and the budget is balanced. Its sovereign wealth funds are a healthy size and there is no political instability. There are clear investment opportunities. So why does Russian growth seem to be running out of steam?
Indeed, only one year ago, as he returned to the presidency, Vladmir Putin was talking about growth of 5 to 6 per cent each year. One of the first decrees he signed on his inauguration last year – decree 596 – included a promise to increase the labour productivity in 2018 by 50 per cent relative to 2011, implying 6 per cent annual growth. As recently as January, Dmitry Medvedev, the prime minister, reaffirmed his commitment to a 5 per cent GDP growth target.
But, in April, Andrei Belousov, Russia’s minister of economic development, downgraded his growth forecasts for the country, announcing that it faced a risk of recession in the third quarter of this year. He cut the official projection for growth for 2013 from 3.6 per cent to 2.4 per cent.