Fourth period of office for Vladimir Putin – is Russia’s economy now set for recovery?

The Russian electorate has voted President Vladimir Putin into a fourth period of office in the Kremlin. A preliminary count shows that Putin received more than 75 percent of the votes. Given the absence of any serious opposition in past months, there was never any doubt that he would be re-elected. Putin’s harshest rival, Alexei Navalny, who has taken up the struggle against corruption and office haggling in the state system, was excluded from the candidate list weeks before the election and had therefore called for an election boycott. Pawel Grudinin, who entered the race for the Communist Party, managed to pan only slightly less than 12 percent of the votes, despite being the best rival candidate. Putin’s main concern was therefore the election turnout. His declared aim was to receive at least 70 percent of the valid votes at an election turnout also of at least 70 percent. Achieving these rates was important for him because they would be decisive for recognizing the legitimacy of his election – both at home and abroad. As regards the share of votes, he exceeded his goal but only just missed it in terms of the election turnout.

Putin certainly has a whole host of tasks to tackle by the year 2024. He regularly stressed the need to boost the country’s economic power and standard of living as a key priority of his election campaign, expressing the will to (finally) create a „flourishing Russia“. However, it is more than doubtful whether Russian domestic product actually can stage a strong and lasting recovery during this period of rule. In the election campaign, he even signalled his aim to boost the per capita output of the population by half within seven years. But for this to happen, average annual growth rates of six percent would be needed, and that is completely unrealistic. To come anywhere close to fulfilling his economic pledges, he would need to carry out a fundamental reform of the entire economic system, drive up investment outside the energy and military sector and modernise and expand the infrastructure area on a grand scale. But the funds for this are currently not available. On the contrary, the state is still currently subject to the principle of parsimony, and this is unlikely to change for the time being.

Thus, to achieve more growth Putin would also need a far more dynamically developing private sector than before. The economy is insufficiently differentiated by sector, and in terms of specific competition parameters, such as productivity, technology and innovative strength, it is currently unable to stage any really significant shows of strength. Little will be accomplished here without any institutional, legal or political changes.

Russia’s working population is in decline, with a qualified workforce often in short supply. Both these factors limit the possibilities of growth. Growth is also hampered by excessive bureaucracy, regulation and state pushing and shoving. All this needs to be drastically reduced. Citizens and companies must experience an improvement in legal security. This requires a legal system that finally functions in accordance with clear rules and principles without the state intervening or attempting to influence court rulings through the back door. In the final analysis, Russia not only lacks the financial means to restructure its economic system so that the energy sector and military technology no longer have such an overweight position. The country also lacks the political will to make any truly fundamental changes in the system. For changes of this kind also always mean risks and possible instability. And both of these clearly run counter to Vladimir Putin’s nature as well as to that of many Russians who have evidently come to terms with their country’s inadequacies and political regime.

The oil price is a long way off from the highs that led to the last boom in Russia. If it could essentially retain its current level in the years ahead, this would at least create a comfortable climate for Russia’s energy companies. The central bank could also continue its policy of interest rate cuts for a while – with the rouble relatively stable – and thereby shore up the economy from below. Nevertheless, all this would most likely only suffice for growth rates of just under +2 percent this year and next, i.e. very little acceleration compared with 2017.

 

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