Russia Economic Report, No. 32, September 2014 : Policy Uncertainty Clouds Medium-Term Prospects
Russia's economy is stagnating. Seasonally adjusted growth for the first two quarters of 2014 was near zero. Consumer and business sentiments were already weak in 2013 due to lingering structural problems and contributed to the wait-and-see attitudes of households and companies. Heightened market volatility and policy uncertainty due to geopolitical tensions during the first half of this year exacerbated this confidence crisis. The Russian economy needed to internalize several rounds of sanctions, countersanctions and measures to stabilize the economy; this environment of higher risk lowered domestic demand. While the macroeconomic stabilization measures were timely and successful, medium term policy objectives are still being defined. This continued policy uncertainty about the economic course of the country is casting a shadow on Russia's medium-term prospects. Prospects for further poverty reduction and shared prosperity are limited. In the past, rising wages and pension transfers allowed Russia to reduce poverty significantly and to expand the ranks of the middle-class. Unless structural reforms to expand the economy s potential are pursued, low investment makes it less likely that plentiful well-paying jobs will be created. High inflation, moreover, will slow real income growth and hurt consumption growth, dimming the likelihood for further poverty reduction and limiting the ability of the bottom 40 percent of the population to share in prosperity.
Summary: | Russia's economy is stagnating.
Seasonally adjusted growth for the first two quarters of
2014 was near zero. Consumer and business sentiments were
already weak in 2013 due to lingering structural problems
and contributed to the wait-and-see attitudes of households
and companies. Heightened market volatility and policy
uncertainty due to geopolitical tensions during the first
half of this year exacerbated this confidence crisis. The
Russian economy needed to internalize several rounds of
sanctions, countersanctions and measures to stabilize the
economy; this environment of higher risk lowered domestic
demand. While the macroeconomic stabilization measures were
timely and successful, medium term policy objectives are
still being defined. This continued policy uncertainty about
the economic course of the country is casting a shadow on
Russia's medium-term prospects. Prospects for further
poverty reduction and shared prosperity are limited. In the
past, rising wages and pension transfers allowed Russia to
reduce poverty significantly and to expand the ranks of the
middle-class. Unless structural reforms to expand the
economy s potential are pursued, low investment makes it
less likely that plentiful well-paying jobs will be created.
High inflation, moreover, will slow real income growth and
hurt consumption growth, dimming the likelihood for further
poverty reduction and limiting the ability of the bottom 40
percent of the population to share in prosperity. |
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