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Macroeconomic risks for Russia in the midterm and possibilities of the return to the growth path

Priority areas of development: economics
2016
The project has been carried out as part of the HSE Program of Fundamental Studies.

Goal of research: the goal of the research is the investigation of the macroeconomic risks for Russia in the midterm and possibilities for the Russian economy to return to the growth path. Following tasks to accomplish are implied by the goal:

  • The investigation of the current macroeconomic processes in the Russian economy and its main sectors (real sector, banking, financial and budget sector, households sector), in the external trade sphere, and financial and capital flows with the global markets;
  • Regular monitoring monetary and fiscal policy and other directions of economic policy conducted by the Government, including policy aimed to the structural changes in the economy; estimation macroeconomic consequences of the decisions;
  • Studying global processes concerned with applying and cancellation of economic sanctions and counter-sanctions, estimation of sanctions effects on the current dynamics and prospects of Russian economic development;  
  • Analyzing macroeconomic risks related to the destruction of the external economic links, slowdown in the  investment activity and the living standards of people, budget problem intensification;
  • Estimating short-term prospects of the Russian economy based on regular surveys of macroeconomic forecasting specialists’ opinions and using the cyclical indicators;
  • Developing the scenarios of the Russian economy development for short-term and mid-term based on macroeconomic modelling;
  • Preparating expert conclusions on official Forecasts of social and economic development of Russia, projections of Laws on the federal budgets of Russian Federation, projects of Guidelines for the Monetary Policy of the Bank of Russia;
  • Improvement of modelling and econometric set of instruments used for accomplishment of the tasks above-listed.

Object of research: the object of the research is the most important macroeconomic, structural and institutional parameters of the Russian economy and its main sectors (real sector, banking, financial and budget sector, households sector), monetary sphere, the external trade sphere, and financial and capital flows with the global markets;

Novelty of research: the novelty of the research is the estimation of the risks of negative or near-zero rates of economic growth in the mid-term period, estimation of the budget system status under those conditions, risks of the real reduction of the budget expenditures, risks of the further reduction of the real households earnings. Scenarios of the mid-term macroeconomic forecast for the Russian economy under different oil prices levels were developed.

Methodology: statistic and econometric instruments of data analysis; surveys of macroeconomic forecasting specialists opinions; analysis based on the composite indices system outstripping the general economic dynamics by 1-2 quarters. For mid-term and long-term forecasting the multidimensional macroeconomic model was implemented, which allows to run imitation modelling of various scenarios of Russian economy development, to reveal bottlenecks and to estimate potential effectiveness of measures of government regulation.

Empirical base of research: the research includes the statistical, graphical and econometric analysis based on the open data sources provided by Federal State Statistics Service of Russia, Bank of Russia, Ministry of Finance of Russian Federation, Russian Federal Treasury, Federal Tax Service of Russia, Federal Customs Service, and another international and national sources. For the purposes of the research also were used official Forecasts of social and economic development of Russia, Federal budget law project, projects of Guidelines for the Monetary Policy of the Bank of Russia, strategic planning system documents.

Results of research: As a result, key risks for the economic development in Russia in the mid-term were revealed. Uncertainty and the absence of the consent agenda on the future development along with the negative external conditions (low oil and gas prices) remain the key factors limiting the economic activity. The adaptation process of the economy to the reduced volume of the currency sources (export revenues volume in 2015 had reduced by 158 bln dollars, and the total external debt after mid-year of 2014 year to the beginning of 2016 year reduced by 217.5 bln dollars) remains the main tendency, and the main channels of the adaptation are real budget expenditures reduction and consumption of the households.

At the same time due to the constraining monetary and budget policy, inflation effects of the exchange rates fluctuations and theirs influence on the real economic indicators are fading out.

Within the research two scenarios were under regard. The first one undermines Ural oil prices to keep at the level 35 dollars per barrel up to 2020 year. The second one undermines the oil price growth to 45 dollars per barrel in 2016 and the price stabilization at the level 50 dollars per barrel in 2017-2020 years. Both of the scenarios based on the presumption about the keeping sanctions regime and current domestic economic policy tendencies. Also risks of the possible changes in the monetary and budgetary policy aimed to stimulating economic growth were regarded.

Under Urals oil prices 35 dollars per barrel the GDP dynamics remains negative. Budget expenditure reduction in real terms can lower budget deficit from more than 4% GDP in 2016 to 1% GDP in 2019-2020 years, but at the expense of suppression of the domestic demand. The total GDP reduction in 2015-2019 years can reach 8.1%. Higher oil prices level cannot solve problems of the economy. The oil price growth to 50 dollars per barrel results into stagnation of the economy. Budget consolidation is more smooth than under the 1st scenario, but anyway it impedes the economic growth. Budget expenditures reduction due to some institutional limitations (protected expenditures and strong defense and commodity lobbying) will worsen social sphere status. State employees’ wages and salaries in 2015-2020 years will reduce by 22-30% (dependently on the scenario) in real terms. Along with that, volumes and quality of the public services will be reduced as well. Tax burden growth could help keeping the expenditures at the current level but trouble recovery and strengthen the structural crisis. Monetary financing of the federal budget deficit can spur economy in the short-term at the expense of spur increase of the macroeconomic destabilization risk and will result in 1-1.5 years into significant inflation growth, capital outflow growth, ruble devaluation and recession resumption. “Stolypin club” propositions, when it comes to increasing money supply in the economy, will result into the same consequences but in far more acute form. Current tendencies and political limitations imped economic recovery, but the source of people loyalty to the living standards deterioration is not unlimited and it can be exhausted in the foreseeable future. Linked with the growing discontent of the non-oligarchial business it can build a pressure in favour of changes in external and domestic policy. Scenarios of that kind are difficult to estimate quantitatively, so they are beyond the scope of the research.

Level of implementation,  recommendations on implementation or outcomes of the implementation of the results: practical importance of the research includes the possibility to use the research findings in preparing regular informational and analytical reports, addressed to interested organizations Commentaries on forecasting social and economic development of Russia, Federal budget Law project, projects of Guidelines for the Monetary Policy of the Bank of Russia, and recommendations addressed to President, the Government and the Bank of Russia. The results can be implemented for informational, expert and analytical support of Government and Bank of Russia on economics and economic policy questions.