Russia’s Economic Outlook Tightens

Recently released economic data shows that Russia’s GDP fell short of expectations last year, while the federal budget required oil prices to maintain at $117 a barrel in order to balance out spending. Maybe Vladimir Putin should have let Dmitry Medvedev ride out a few of these rough years before jumping back into power. Also, it appears to be turning into a tradition – elections and periods of uncertainty in Russia are accompanied by very loose monetary policy, which is just one fiscal consequence of dysfunctional democratic institutions. From the excellent FT BeyondBrics blog:

GDP data published on Thursday show the economy grew at just 3.4 per cent in 2012, down from 4.3 per cent a year earlier, and well short of forecasts of around 3.6 per cent.

It’s the lowest rate recorded since Vladimir Putin first became prime minister in 1999, except for the global crisis year of 2009. Russia has grown much richer in the past decade, but sustained broad-based economic development remain elusive, as even prime minister Dmitry Medvedev (left) admitted.

“The potential of development in the framework of a traditional export-oriented model has practically been exhausted,” Medvedev said at a government meeting, as reported by Bloomberg. “The main risks aren’t external, but domestic.” (…)

Timothy Ash of Standard Bank said in a note: “Surprise, surprise, policy was very loose in the run up to presidential elections last March, it (monetary and fiscal) has subsequently been tightened, and this, combined with the weak global backdrop, is now acting as a significant drag on the economy. The CBR [central bank], for some strange reason, has been very reluctant to ease policy – despite growing pressure from the government, but with weak growth and greater deflationary pressures more generally now through the economy, I think the CBR will need to follow.“