MOSCOW, August 12 (RIA Novosti) – The Russian economy will avoid a recession but is in a period of stagnation caused by high levels of social spending and structural problems, Russia’s top economic official said in an interview published by Kommersant newspaper Monday.
“Stagnation is probably an appropriate term [to describe the Russian economy],” Economic Development Minister Alexei Ulyukayev told Kommersant in his first interview since he was appointed to the position in June.
Russia's economy grew just 1.2 percent in the second quarter of 2013 compared with a year earlier, according to estimates released by the State Statistics Service on Friday, the sixth consecutive quarter of falling growth, and the worst performance since the 2009 recession.
While Ulyukayev conceded that the economy was tanking, he denied that it was entering a sustained period of contraction. "There is no recession. And there will not be one," he said, Kommersant reported. Ulyukayev told reporters later on Monday that economic activity was likely to pick up in the second half of the year.
Problems were being caused by “institutional, structural and macroeconomic factors,” Ulyukayev said, singling out high levels of social spending as an underlying reason, according to Kommersant.
“We have very high spending levels that are caused by a certain set of conditions that cannot be scrapped,” Ulyukayev told Kommersant. “Russia is a middle income country but we have shouldered social obligations higher than those middle income countries usually have.”
Russia’s Central Bank kept interest rates on hold during a meeting of its board of directors Friday, avoiding a rate cut that many economists predicted would boost economic growth. The Economic Development Ministry has repeatedly said that the Central Bank should act to aid the economy.
President Vladimir Putin called for economic growth to be restored through investment in giant state-backed infrastructure projects at the St. Petersburg Economic Forum in June.
The Russian economy slowed to 3.4 percent growth last year, from 4.3 percent growth in 2011, and in recent months experts and officials have reduce their growth forecasts for this year. The Economic Development Ministry cut its 2013 growth forecast from 3.7 percent to 2.4 percent last month.
“We are less optimistic about the outlook for 2013 and 2014, as, in addition to a weak institutional framework, economic policy is becoming increasingly enigmatic,” analysts from Sberbank CIB said in a research note Monday.
Updated with new comment by Ulyukayev
