Install

Get the latest updates as we post them — right on your browser

. Last Updated: 07/27/2016

World Bank Questions GDP Target

A World Bank report issued Wednesday cast doubt on the government's ambitious goal of doubling the size of the economy within a decade and showed that salary growth could be capped at current levels unless overall productivity improves.

"The desired high growth rates require unrealistically high prices for oil and gas or an acceleration of structural reforms," Christof Ruehl, chief economist for the World Bank in Russia, wrote in the bank's sixth quarterly economic report.

Ruehl said he analyzed historic economic data, isolating growth of the natural resources and domestic manufacturing sectors, only to find that "since the [1998] crisis, growth rates over 5 percent have only been achieved in conjunction with increasing oil price."

Ruehl's estimates show that an increase of 1 percentage point in world oil prices triggers a 0.07 percent increase in gross domestic product, the figure used to capture the value of all goods and services in the economy.

The World Bank forecasts a 6 percent growth rate for 2003; anything higher would require that oil prices shoot significantly higher than $27 per barrel.

The report also suggests that the recent boom in Russians' incomes earnings may be fizzling. After significantly outpacing increases in GDP, the current rate of growth may no longer be sustainable.

Shortly after the 1998 default, earnings dropped significantly but then shot back up as the economy bounced back, suggesting that the labor market worked as a corrective mechanism when the economy fell off the equilibrium growth path. Back then "it was the wage and salary receivers who bit the bullet," Ruehl said in the report.

But these days, real wage growth and GDP growth rates are converging, so unless productivity increases, wages will rise at the same pace as the economy.

"In the future, wages should stop growing faster than GDP," R?hl wrote.

Moscow's Development Center, an economic research institute, polled 30 market participants and found that the consensus forecast is that Russia's GDP will grow 5.8 percent this year and 4.6 percent in 2004.

Brunswick UBS more optimistically forecasts 7.5 percent growth for both this year and next. Alfa Bank estimates growth of 5.3 percent and 4.1 percent, respectively. Renaissance Capital predicts strong growth of 5.7 percent this year, followed by a relative slump of 3.9 percent growth in 2004.

Both Alfa Bank and Renaissance Capital say they are in the process of revising their 2004 forecasts to factor in oil price increases.

Whatever the hard numbers are, they may be deflecting attention from some attempts by the government to move the goal posts, Ruehl said, referring to the government's shifting time frame for doubling GDP.

"The first version I saw said GDP should double by 2010, which [effectively] translates into 10 percent growth rates," Ruehl told reporters Wednesday.

Then, the same officials said they had 2010 in mind, but they moved the starting date back from the original 2003 to the year 2000, so as to calculate the target from a lower baseline.

Now, there is talk of doubling GDP by the year 2013, Ruehl said, which means the lengthened time span has been pushed back.

"It seems like a moving target," Ruehl said, adding that his report used 2013 as the time frame, which he referred to as "a soft target."