Medvedev: Russia hit by three economic shocks

Medvedev: Russia hit by three economic shocks

Russia will not escape a general economic recession due to the coronavirus pandemic  and now our country is hit by three economic shocks, Deputy Chairman of the Russian Security Council Dmitry Medvedev said in his article published in the magazine "Russia in Global Affairs."

"According to the Ministry of Economic Development, the country’s GDP will fall by 5% in 2020, real incomes are expected to drop by 3.8% and unemployment to rise to 5.7% , the highest in the past nine years. Today, our country is hit by three economic shocks," Medvedev wrote.

"First, the falling global oil prices. This is the biggest shock, since the domestic economy remains dependent on hydrocarbon exports. However, over the past 20 years, Russia has withstood such blows three times, in the late 1990s, in 2008 ̶ 2009 and in 2014 ̶ 2015, meaning that it isn’t difficult to assess the impact of this shock on the economy and pinpoint the most effective measures to alleviate its ramifications," he noted.

The second, internal, shock was the result of the regulatory decisions by the state trying to slow down the spread of the coronavirus infection. 

"On the face of it, it is reminiscent of the situation in the early 1990s, when individual economic agents dropped out of the economic process, thus severing existing ties. But this comparison works only partly, to say the least. The current problems in the real sector of the economy, the labour market, the social sphere and the banking sector are unprecedented in their nature, and standard approaches to analysing economic and financial crises are not applicable here," the Deputy Chairman of the Russian Security Council stressed.

"The closing of businesses cannot be explained by poor competitiveness of the companies or the goods. After all, their closing was primarily caused by non-economic decisions. Moreover, under quarantine, maximum restrictions apply to the service sector, where production chains are normally straightforward and short (small businesses and service sector)," he believes.

According to him, the recession may be limited to the period of the regulatory decisions, and economic recovery will begin fairly quickly, unless, of course, new waves of the epidemic lead to another round of forced restrictions.

The third shock is associated with the declining international demand for a wide range of domestic goods due to a slowdown in the global economy. 

"A similar situation was observed in 2008–2009 during the global financial and economic crisis. The scale of the current decline in Russia’s exports can be seen if you compare them with that period. Therefore, the duration of this fall may be limited to the duration of strict quarantine measures, after which the demand will recover. Here, too, there’s a threat of a new outbreak of the pandemic, which can inflict a debilitating blow to the global economy," Medvedev concluded.