Putin's failure damning Russia to low growth trap

Putin's failure damning Russia to low growth trap
President Vladimir Putin.

MOSCOW - Russia's failure to significantly change its energy-dependent economic model under President Vladimir Putin is consigning the country to potentially decades of low growth and eroding its status as a top emerging economy.

The Russian economy ministry on Thursday dramatically confirmed what was obvious to many, by downgrading its estimate of Russia's average growth to 2030 to a paltry 2.5 per cent, a far cry from over seven per cent rates in the early Putin years.

"The pace of Russia's economic growth will fall behind the global average in the forecast period," admitted Economy Minister Alexei Ulyukayev.

This year even Russia's official forecast puts 2013 growth at just 1.8 per cent. But most worrying for the Kremlin is that the weakness cannot just be blamed on external factors but stems from domestic shortcomings.

'One of the biggest underperformers'

The Russian economy faces a daunting list of troubles -- a declining population, the re-emergence of the United States as a rival energy superpower due to shale gas, and the government's colossal spending on defence that stretches the budget.

These factors are compounded by Russia's failure to stimulate private enterprise, reform the judicial system, improve labour productivity and turn the Russian economy into more than a lumbering energy producer.

Russia's weakness this year alone can be linked to this failure, which has damaged the investment climate, economists say.

The revisions by the economy ministry were the "clearest signal yet that Moscow believes that economic weakness over the past year has been structural rather than cyclical in nature," said Neil Shearing, Chief Emerging Markets Economist at Capital Economics.

"Without a major shift in policy we suspect that Russia will go from being one of the world's fastest growing economies to one of its biggest underperformers."

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