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**Hugh** · 19-06-2015, 17:32

You may find this Chatham House report on the Russian economy of interest...

http://www.chathamhouse.org/expert/c...GNsaAt6V8P8HAQ#

Quote:

Fragile economy

Scratch the surface, however, and it is clear that on other economic indicators the picture is less benign. Prices continue to rise, with annualized inflation reaching nearly 17 per cent in March. Industrial production, although boosted by the weak rouble, remains anaemic. Investment, which as a proportion of GDP is already comparatively low, is falling rapidly, with a year-on-year decline of 5.3 per cent registered in March. Taken together, these indicators of activity in the real economy suggest that GDP, which unexpectedly grew at the end of 2014, may have fallen by around 2 per cent in the first quarter alone. These data hardly augur well for a sustained and broad-based return to growth.

The rally, to the extent that there is one, is focused largely on the rouble. But the wider economy is performing badly. More worryingly, even this narrowly focused strong performance is precarious. Should oil prices begin to decline again, perhaps as Iranian oil increases global supply, or if fighting in Ukraine intensifies, confidence could evaporate just as quickly as it returned in recent months.

The gyrations of Russia’s short-term economic performance also divert attention from the fact that Russia is afflicted by a severe and prolonged slowdown in the rate of growth. The system of political economy that has existed for the past decade and a half is no longer delivering an acceptable rate of economic growth. Most senior policy-makers acknowledge this. But thus far, the Kremlin has showed no appetite for undertaking the type of reform needed to fix the severe problems that are holding the Russian economy back.

Unfortunately, the policy response to the economic downturn and Western economic sanctions threatens to increase state control and make the economy more introverted. Rather than strengthening property rights, boosting competition and creating the conditions for accelerated private investment, the leadership is instead considering a wide-ranging import substitution plan to insulate Russia from the global economy. It is also allocating scarce public funds to help inefficient but politically well-connected enterprises. While these policies satisfy powerful constituencies close to the Kremlin, they do nothing to address the acute structural challenges facing the Russian economy.