The economic decline in Russia is stabilizing: while the current contraction is significant, in quantitative terms it is not that great, according to the Bulletin of the social and economic crisis in Russia entitled Foreign Trade: Changes in Structure and Trends, prepared by experts of the Analytical Center.
In 2016, the decline of most economic indicators has slowed down. "Even the further decrease of GDP by 1% by the end of this year in Russia may be regarded as a sign of stabilization at a new level that is going to be followed by growth and modernization," the experts write.
They are convinced that it is not easy for any country’s economy to adapt to the kind of external pricing shock that Russia is going through right now, which involves dollar exports falling by a third within one year. Given the other problems that the national economy is facing, such as weak saving processes, low competitiveness in a number of industries, high income inequality, and a significant inflation rate prior to the crisis, the economic downturn the country is experiencing does not look as bad as could be expected.
The experts also believe that in the past five years, exports growth has been slowing down all over the world relative to the global GDP growth, while prior to the 2008-2009 crisis, exports had been growing faster than GDP.
As household consumption in Russia fell by 10% and investments fell by 8% in 2015, net exports were up 72% (in 2009 they were up 57%), primarily as a result of s sharp decline in imports, and this is what kept the negative GDP growth at just -3.7%.
At the same time, some changes also occurred in the structure of Russia’s foreign trade because of the crisis. As expected, the share of APEC in Russian exports went up even as the share of the EU and the CIS (because of Ukraine) went down. While the structure of commodities exports remained largely unchanged in real terms, in dollar terms the share of oil decreased.
As far as imports are concerned, there was a significant decline in the imports of cars and groceries (as a result of the sanctions) but imports of machines and equipment are still high, the bulletin notes. With regards to imports of groceries, Russia is now buying its food from new suppliers. Partially, imports of groceries are being substituted thanks to an increase in domestic production, even though in agriculture this process takes a long time. Paradoxically, success in the growth of a number of agricultural sectors depends to a large degree on the sanctions and counter-sanctions continuing at least in the short term. As a result, a well known protectionist industrial policy is taking shape: the domestic market has been temporarily closed to allow domestic producers to modernize and become more competitive.
See more in the Bulletin Foreign Trade: Changes in Structure and Trends
Other issues of the Bulletin on the social and economic crisis are available under Publications.