Economy Ministry: Russian Economy’s High Growth not Sustainable in 2019

Russia’s high economic growth in 2018 was fueled by one-off factors that mean the goals set by President Vladimir Putin won’t be achieved without an increase in household incomes, the country’s Ministry of Economic Development has said in its first comments on last year’s economic results, according to RBC.

After preliminary numbers by Russian state statistics were reviewed, the data revealed a six-year high in GDP growth at 2.3%, exceeding the 1.5 to 2.0 percent foreseen by the central bank and the 1.8 percent predicted by the economy ministry. The figure raised doubts over the accuracy of state statistics agency Rosstat.

The Ministry of Economic Development did not specify what would be the growth rate of GDP in 2018 without taking into account one-off factors.

Putin, after winning his fourth term last year, ordered the government to bring the Russian economy into the world’s top five by 2024, saying economic growth should surpass the global average of about 3 percent.

Growth exceeded expectations partly because Rosstat revised growth in the Construction sector in the first 11 months of 2018 to 5.7 percent from 0.5 percent. The economy ministry said construction in Russia’s Yamalo-Nenets region accounted for the revision.

A week after the data was published, the ministry said GDP growth had been boosted by one-time factors and predicted it would slow to 1.3 percent in 2019.

“We can speak of sustainable growth when there are sustainable growth drivers such as higher investment, low capacity utilization, rising households’ incomes, which with some delay filters into consumer demand, which drives the economy,” Andrey Movchan, an economist at the Carnegie Moscow Centre, told Reuters.

“We have none of that,” Movchan said. “We are moving slowly towards a demographic pitfall, we have almost zero non-state investment … All developments favor GDP contraction rather than growth,” he added.