Russian economy struggling to weather storm, land in sight
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E-mail Xinhua, December 25, 2015
The year 2015 saw the Russian economy in a critical condition, caused in part by the decline of global oil prices and Western sanctions imposed on the country due to its takeover of Crimea and alleged involvement in the Ukraine crisis.
By introducing a year-long anti-crisis package, Russia's economy is now showing signs of resilience, and the country's leadership expects growth next year, despite predicting an extended period of low oil prices with economic sanctions in place.
ANTI-CRISIS PACKAGE TO EASE PRESSURE AT HOME AND ABROAD
Pressure both at home and abroad has made it hard for Russia to achieve economic growth.
With energy resources being heart of Russia's economy, overreliance on oil exports has taken its toll as global oil prices plummeted from 100 U.S. dollars per barrel in early 2014 to about 36 dollars per barrel now. Western sanctions against Moscow have just made the situation even worse.
Taking into account oil price downturn, the Ministry of Economic Development forecasted that Russia's GDP would shrink 5 percent with a 3-trillion-ruble (some 42.8 billion dollars) reduction in government revenue this year
The crisis has triggered a decline of the ruble, Russia's national currency, which depreciated by 72.2 percent against the U.S. dollar from March 2014 to December this year, leading to import cuts and import substitution in a range of sectors as a countermeasure.
In the face of the discouraging picture, President Vladimir Putin called for optimizing economic structure, improving governance and attracting foreign investment.
Echoing the call, Prime Minister Dmitry Medvedev signed a one-year anti-crisis package in January worth 2.3 trillion rubles (30 billion dollars) to stabilize the domestic economy. ' Dmitry Polevoy, chief economist at the ING Bank, noted that import substitution has borne fruit in some sectors like food production, but he believed substantial investment is still needed.
"For import substitution to be efficient, it needs big investments either from the government or the private sector. But there is less and less money in the budget, while private investments are also unlikely," the expert told Xinhua.
POSITIVE TRENDS IN SIGHT
Although the current situation is still complicated, particularly considering the volatility of the global oil market, Putin has shown his unwavering confidence in Russia's national economy.
In his annual state of the union address to the Federal Assembly earlier this month, Putin noted that there are positive trends, while urging the country to be well prepared for a continued period of low oil prices and external restrictions.
"Industrial production and the exchange rate of the national currency have stabilized in general. There is a visible inflation slowdown and we have noticed a substantial reduction in the capital drain compared to 2014," he said.
The president reiterated his confidence at his annual year-end press conference, citing the gradual stability in the labor market and the unemployment rate, with investors showing willingness to return.
On Dec. 3, U.S. rating agency Moody's changed the outlook on Russia's government bond rating to stable from negative.
The key drivers for the upgrade were the stabilization of Russia's external finances, resulting from a macroeconomic adjustment that helped to mitigate the effect of the fall in oil prices on official foreign exchange reserves, and the diminished likelihood of the Russian economy or finances facing a further intense shock in the next 12-18 months, the agency said in a statement.
The upgrade in the outlook confirmed that the Russian government has adopted a correct macroeconomic policy, Finance Minister Anton Siluanov said, adding that the next step will be to reduce the budget deficit and ensure the transition to stable economic growth.
The Russian government forecasted that inflation in Russia would decline to 6.4 percent in 2016 from 12.2 percent expected this year, while the country's industrial production would rise by 0.6 percent next year after a 3.3 percent decline in 2015, an estimate the Moody's generally agreed with.
However, such positive indicators cannot be regarded as a way out of the crisis. In the short term, only a rebound in global oil prices could significantly stimulate Russia's economic growth, while a transition to a healthier economic model could make a real difference in the long run.
LOOKING EASTWARD
In addition to applying retaliatory measures against Western sanctions, Russia has been actively trying to enhance cooperation with its Asian neighbors, particularly China, indicating that Moscow has begun to look toward the east.
Putin in July signed a law to give the country's Far East city of Vladivostok and 15 other maritime administrative districts the "free port" status, and made the development of the region "an overriding priority of the 21st century."
Following that, the Russian government created a "block of advantages" to speed up the socio-economic development of the Far East, including tax breaks, simplification of administrative procedures, and the creation of a single management center.
In September, Russia held the grand Eastern Economic Forum (EEF), a platform open to the Asia-Pacific region, and is dedicated to promoting the investment environment in the Far East to the Asian business community, so as to beef up the integration of Russia's Far East with Asia-Pacific countries.
The development of the Far East will also step up Russia's cooperation with China, which has been Moscow's top trade partner for four years, and has a long history of cooperation in energy, industry, investment and trade with the country.
When attending the EEF, Chinese Vice Premier Wang Yang expressed China's confidence in Russia's Far East development, as well as its readiness to expand bilateral cooperation in such areas as resource development, processing and manufacturing, and modern agriculture.
Russian Deputy Prime Minister Yury Trutnev, who is also Russia's presidential plenipotentiary envoy to the Far Eastern Federal District, has said that Russia considers China as one of its main potential partners in the region's development, particularly in view of the alignment of China's Belt and Road initiative and the Russia-initiated Eurasian Economic Union project.
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