Minister Says Economy at Risk of Sliding into Recession
- Apr. 14 2013 00:00
- Last edited 16:28
BLAGOVESHCHENSK —áRussia's economy is at risk of sliding into recession by autumn and the government may need to implement stimulus measures to shore up growth, Economy MinisteráAndrei Belousovásaid.
"We are not in recession for now, but we may get there — there is such a risk," Belousov told reporters Friday, a day after his ministry slashed its growth forecast.
"I think that if by autumn we don't see growth for some period, we may slide into recession."
A year afteráVladimir Putináreturned to the Kremlin with calls for a "new economy" to boost investment and shake up state-run industries,áRussia's $2.1 trillion economy is close to stagnating.
TheáEconomy Ministryáon Thursday cut its growth forecast for this year by a third to 2.4 percent, which would beáRussia's worst showing since 2009, when the economy contracted sharply as a result of the global financial crisis.
Russia's GDP grew at around 1 percent in the first quarter, weighed down by lackluster investment and a decline in exports of strategic commodities such as natural gas that were hit by a slump in the European market.
The debt crisis in eurozone memberáCyprus, a financial center through which a quarter of Russian foreign investment and lending flows, has heightened concerns, meanwhile, that the Russian economy will be starved of capital.
Belousov's warning is part of a debate over whether the economy needs monetary stimulus to boost growth nearer to the Kremlin's target rate of 5 percent.
Putin's choice to run the central bank,áElvira Nabiullina, has emphasized growth as a key policy goal and dialed back ambitions for reducing inflation that, at over 7 percent, is now running above target.
Economists expect the central bank to cut rates at the latest when Nabiullina takes office in June, although witháRussiaáon the brink of stagflation many argue that structural reforms, not rate cuts, are what the economy really needs.
Russiaáinstituted a new fiscal rule last year that ties spending to a historical average of prices for oil —áRussia's main export — while capping the budget deficit at 1 percent of gross domestic product.
That may restrict the government's ability to ramp up state spending, but does not rule out other measures designed to improveáRussia's investment climate and boost the flow of credit into the economy.
"We will propose economic stimulus measures. We will have a meeting with the president," said Belousov. "Measures should be taken, as we need to solve the situation we got into in order not to slide into recession."
Russia's postcrisis recovery has been heavily dependent on the consumer, while a hefty increase in government spending before Putin's election in March 2012 to a third Kremlin term also kept the economy ticking.
The weakening outlook does not necessarily herald a full-blown recession, defined in economics textbooks as two consecutive quarters of negative growth.
The government is, meanwhile, considering ramping up sales of state assets to raise funds that could be committed to stimulus spending, including the possible sale of a 19.5 percent stake in state oil major Rosneft.
"Although we don't expectáRussiaáto fall into recession, authorities' concerns are understandable and a moderate monetary or fiscal stimulus would be appropriate, in our view," saidáAnatoly Shal, chief economist at J.P. Morgan ináMoscow.
"In fiscal policy, using a back door to bypass the budget rule would be one way to respond to economic weakness," Shal added.