FBK’s Economic Club Experts Discuss Economic Growth under Sanctions

Does Russia have a chance to become a fast-growing economy? Where to look for growth areas? How do sanctions and anti-sanctions affect people and businesses? Why is the rouble exchange rate currently unaffected by oil prices? What is the expected inflation rate? These were some of the questions discussed by top Russian experts at the end-of-year meeting of FBK’s Economic Club. Those present at the meeting also looked back at the year that is now ending and shared their forecasts for the development of Russian and world economy.

In his opining speech Igor Nikolaev, Director of FBK Strategic Analysis Institute, underlined that this year all economic indicators are below target values. The economic growth rate is 1.5% instead of 2.1%. The inflation rate increased to 4% though it was expected not to exceed 2.8%. Real disposable income should have increased by 2.3% but in fact increased only by 1.6%.

“This year will certainly be remembered because of the decisions made, such as raising retirement age, increasing the VAT rate and introducing a self-employment tax. For the next year, we see several adverse factors for the economy. They, of course, include further sanctions, an untimely rise in the tax burden and oil prices that may easily drop below 50 dollars per barrel,” said Igor Nikolaev.

Anton Struchenevsky, a senior economist at Sberbank CIB, said that lately the rouble exchange rate has not been much affected by oil price fluctuations. And now, thanks to various mechanisms, the Russian economy is as if the oil price was 40 dollars per barrel. If such situation continues, in 2019 the US dollar may be 66-67 rubles.

“Such system, which is based on tight budget policies, is a protective measure and can give us 1.5-2% of the economic growth,” concluded Anton Struchenevsky.

Georgy Idrisov, Pro-Rector of the Russian Presidential Academy of National Economy and Public Administration and Director of the Institute of Industrial Markets and Infrastructure, said that the May Orders have set almost unrealistic targets and as there are so many of them, it puts the existing economic model under pressure and this economic model is apparently not suitable for that.

“If we actively engage in the accelerated implementation of digital technologies, poverty reduction and arrangement of the export-oriented sector, in a year we will obtain a bit more than under the inertial growth model. But still reality will hardly meet expectations as there are no tasks without resource constraints: it is impossible to be rich, healthy and happy at the same time,” the expert concluded.

According to Sergey Vasiliev, Deputy Chairman of the Management Board of Vnesheconombank, social tasks mentioned in the May Orders require resources that will be sufficient only in case of the high economic growth.

“Currently the growth is impossible if the economic model is not changed. If the growth stays at 1.0-1.5%, we will have no resources to tackle social tasks,” said Sergey Vasiliev. 

Alexey Vedev, Director of the Center for Structural Studies of the Russian Presidential Academy of National Economy and Public Administration, said that the new target scenario of socio-economic development provides that the government accumulates resources and implements special-purpose projects that obtain additional investments from private companies.

“Private investments are expected to account for 70% of all investments. This is the main risk as it is likely that there will be fewer investments than the government believes,” the expert shared his doubts.

Nikita Maslennikov, Advisor at the Institute of Contemporary Development, said that, on the one hand, this year we have reached the pre-crisis level, on the other hand, it took much longer than during the previous crisis and such trend is not promising.

“As a result of the economic policy pursued in 2018, a vast number of regulatory mechanisms were left aside in favour of manual management. That is why the next year for me is a challenging one in terms of building more or less clear regulatory framework,” said Nikita Maslennikov.

FBK Economic Club is a unique discussion platform where journalists can meet well-known economists, politicians and public officials in order to discuss a wide variety of economic issues.