Russia in for structural economic decline, says economist

Screen with currency exchange rates in Russia. Ruble's exchange rate has recently dropped to record low. (RIA Novosti/Scanpix)
11/27/2014 12:12 PM
Category: Economy

Russia's recent economic drop has been short term, but a structural decline, which will last longer, is on the cards, says Swedbank head economist Tõnu Mertsina.

Mertsina told ERR radio on Wednesday that Russia's economic growth began to wane at the beginning of 2012, and the events in Ukraine have not exactly given the economy a boost.

He said the Russian economy will grow this year, but is expected to fall into recession next year.

The 2009 and 1998 economic downturns in Russia were short term, but the current drop will take far longer to recover from.

The economic stats are mixed, Mertsina said, with unemployment at a all-time low of 5 percent, while salaries are increasing at around 7-8 percent annually. But inflation is high and inflation-adjusted salaries have dropped, leading to a decline in consumption.

"If we look at manufacturing then the processing industry in Russia has held up fairly well as," he said, adding that the Russian-Chinese gas pipeline will have a positive affect in the short-term.

One of the major problems is the flow of capital abroad, but it is not a new problem, Mertsina said. During 2010-2013 around 200 billion dollars (160 billion euros) left Russia; the figure for the current year is expected to exceed 100 billion dollars (80 billion euros).

Another large-scale problem is foreign debt of Russian companies, which is around 500 billion dollars (400 billion euros), of which a quarter is due to be repaid next year. With foreign capital markets restricted to Russian companies, many could face critical moments at the end of 2015.


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