Russia has crisis of financing mechanisms of economic growth

According to Russian citizens, the economy, inflation, and low living standards are the three most urgent problems of Russia. The Ukrainian crisis has paled into insignificance. According to VCIOM, growth of concerns about the economy began in November 2015 (17%), and by January, it reached 23%. In December 2015, 12% of Russian citizens believed inflation was the most serious problem; in January, there were 20% of such people. Low wages and low living standards are listed among the biggest problems by 13% of respondents.

Economists suggest various options for a way out of the crisis, but some of them don’t work, others are not being implemented.

“Currently we are unable to confront the conjunctural crisis that is developing in the world economy. In addition, all of this is aggravated by sanctions pressure. In this regard, we have to stop some of the most acute problems that exist in the economy, and anticipate the period of further oil price recovery, improvement of the situation in our relations with the world economic community. And, actually, then the economy will slowly start to emerge from the crisis,” Alexander Shirov, deputy director of the Institute of National Economic Forecasting of the Russian Academy of Sciences, says.

In principle, this logic corresponds to the behavior of the economic authorities, which was observed in the period of the 2008-2009 crisis. “After 2009, the economy, when we dropped by almost 8%, recovered very quickly. And indeed, if we proceed from this logic, such actions are quite possible. But, it seems to me, there is some problem here, because the situation has changed dramatically. First of all, I must say that if in the 2008-2009 crisis we had hopes of three sources of possible incomes at once: first of all, it is the recovery of the global conjuncture; secondly, it is the growth of domestic consumer demand; and, finally, the growth of investment demand, but now, unfortunately, the situation is unfolding in such a way that the most important support for the economic dynamics in Russia, consumer demand, has disappeared,” the economist says.

According to him, the growth of consumption of the population is somewhere at the end of the whole production cycle, and as the economy recovers, growth in incomes and in consumer demand will occur last: “After any additional revenues in all the subjects of the economy will appear, the situation in all the commodity markets will adjust, then we can expect a growth of revenues in business, in the budget, in the public sector and so on.”

Shirov says that Russia can hardly count on substantial growth in production volumes and exports of raw materials: “We can expect a rise in prices, but we have significant limitations on growth of volumes. This means that the amount of revenues that we can obtain from foreign markets also won't be the one that would allow us to rapidly develop and recover. The only significant source of growth, which may even exist in the medium termnis investment capital. Only from this source can any revenues in the economy occur, which will allow for recovery. And it turns out that there are more arguments not in favor of a stabilization policy, but in favor of a policy that is primarily aimed at the recovery of the investment activity level and at solving those structural problems that exist in the economy.”

The expert thinks that the crisis that is happening in Russia is not structural: “We have a crisis of financing mechanisms of economic growth. I mean mechanisms of financing of economic growth that were created and operated in recent years; they are not enough to make the economy grow. The main task is restoration of rates of growth. We actually need to get positive economic dynamics. If we have incomes, and economic growth implies growth of incomes, it is impossible to solve the task of providing acceptable rates of growth.”

Speaking about providing positive economic dynamics, Shirov suggests counting on larger businesses: “All the time we are talking about small businesses, but in reality we can quickly provide some effect by sending money precisely to large business, not necessarily to public companies with state participation, maybe to private, but to large businesses that are ready take this money, which have projects, which can turn this money into some economic dynamics, in investments… We must create new incomes in the economy, and based on these new revenues we can actually try to get out of the current situation.”