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Vladimir Putin Told about a Growth Slowdown
// Agenda
News agencies gave wide coverage to yesterday's meeting between the president and members of the government, at which socioeconomic issues were discussed. Deputy Prime Minister Aleksandr Zhukov and Minister of Finance Aleksei Kudrin were absent from the meetingthey were in London at the Russian Economic Forum giving reports on Russian economic growth successes. Minister of Economic Development and Trade German Gref, who was present at the meeting, informed the president of a slowdown of industrial growth in Russia.
Judging from news agency reports, German Gref painted a very contradictory picture of present-day Russian economic activity for the president. On the one hand, he noted that in the first quarter of 2004, GDP grew 8% compared to the first quarter of 2003. Thus, Russian economic growth rates are formally 8% per year. As the minister stressed, “we are moving within the forecast limits and GDP growth dynamics are being maintained despite the fact that light industry, ferrous metallurgy, and the forest industry remain in a slump.” You might even say the minister was overly modest, since the forecast for this year is 6.4%, so that the Russian GDP even surpassed the forecast.
On the other hand, German Greg dwelt at length on negative trends. For example, in his words, export growth in March was slower than import growth: “exports grew 0.7% in March, while import growth was 2.1% or three times higher”. Furthermore, “a very important trend has appeared: investments decreased in the first two months and increased 0.5% in March for an overall drop of 1.9% for the first quarter.” Thus, despite economic growth, investments are still decreasing. Moreover, a decrease in real incomes of the population was also being observed: “in February, –1.8% and in March, –0.4%.” Finally, according to Mr. Gref, “industrial growth in March was 0% with respect to February,” and GDP growth was 0.1%. Thus, industrial growth stopped altogether in March, and economic growth almost stopped.
Then how did growth rates in the first quarter reach 8%, you might ask. The answer is simple: according to official data, GDP grew 7.3% last year. In the first quarter of 2004, GDP increased 0.7% compared to December 2003 (as German Gref reported yesterday). Thus, it is quite possible that the Russian GDP is 8% higher than at the beginning of last year. But will it exceed last year's level by that much later on if growth has stopped?
Yesterday Vladimir Putin instructed German Gref to solve all these problems with economic growth together with Prime Minister Mikhail Fradkov. “I'm asking you and the head of the cabinet to watch macroeconomic indicators that would promote growth of the processing industry. This is a key element of current and intermediate-term activities,” the president emphasized.
What is the result of all this? Russia's economic growth has probably not stopped for long. Mr. Gref stressed yesterday that, “retail turnover continued to grow in March, increasing by 0.2%.” Thus, he said, “we can expect that in April, incomes of the population will move to the plus side and start increasing.” Correspondingly, he expects that economic growth will resume: if citizens buy a lot of goods and spend their incomes, producers usually respond by increasing output. However, in this case, German Gref showed himself as a more cautious economic policy figure than Mr. Zhukov and Mr. Kudrin, who did not dwell very much on negative trends of Russian economic development in London, preferring to advertise the successes. However, Mr. Gref always made it clear that ultrahigh economic growth rates leading to a doubling of Russia's GDP would not come that easily. There was also one more circumstance. A week ago, Central Bank Chairman Sergei Ignatev reported to Vladimir Putin that the government's policy with respect to the ruble rate (which until recently was steadily increasing) did not hamper Russia's industrial development: “we are not observing any negative signs.” “And you won't observe any that quickly,” President Putin replied then. Yesterday's report by German Gref showed that others have already seen the negative signs that were imperceptible to the Central Bank Chairmanindustry has come to a halt and exports are increasing much more slowly than imports. In economic theory, these phenomena are usually connected precisely with inflated exchange rates of the national currency (although we note that this theory by no means always operates).
Government representatives now have to decide who is to blame for what has happened and what can be done (in fact, when the president spoke yesterday of “macroeconomic indicators” that were supposed to help industry, it was understood that he was referring mainly to the ruble rate). The Ministry of Economic Development and Trade is not really responsible for the ruble rateresponsibility for the currency exchange rate in Russia is usually placed on the Central Bank and to a lesser extent on the Ministry of Finance. They are the ones who have to think about what to do next with the ruble.
Sergei Minaev
All the Article in Russian as of Apr. 20, 2004
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