Putin Focuses on Russian Economy in Key Annual Speech

President Vladimir Putin focused on the state of Russia's economy, social issues and domestic policy in his key annual speech delivered on December 1, a marked contrast from the 2015 state of the nation address which highlighted international security, Russia's role in countering international terrorism and its military campaign in Syria.

The ultimate goal for Russia is to create a "next generation digital economy" based on domestic innovation. However, this task requires resolving major challenges plaguing Russian economy.

President Putin pointed to internal issues, including the lack of investment, high tech, professional labor resources and competitiveness as the major factors behind sluggish GDP growth.

"Two years ago we encountered serious economic challenges, with an unfavorable global market environment, with sanctions which were designed, as the saying goes, to force us to dance to someone else's tune and to ignore our fundamental national interests. I will, however, repeat that the main reasons for the stalling of our economy are internal," he explained.

However, the trend is positive. For instance, Russian GDP fell by 3.7 percent last year, but in 2016 economic contraction will be negligible. In the first ten months of 2016 GDP fell by 0.3 percent, the president noted.

The same is true of inflation, which rose to 12.9 percent in 2015 and is expected to be less than 6 percent this year. More importantly, Russia could reach its target inflation of 4 percent in 2017 and recover its economic growth rates, the president added.

"The trend is obviously positive and significant," he said.

President Putin said that industrial production in Russia has experienced a slight growth. The country has also managed to achieve macroeconomic stability and preserve its financial reserves.

The Russian leader warned that the country should make every effort to achieve a sustainable economic growth, which is not a given in these circumstances. Otherwise, the implications of slow development could be damaging.

"I want to emphasize that stabilization does not necessarily lead to a sustainable growth. If we do not resolve the basic challenges which the Russian economy faces, if we do not kick start the new growth factors, we could get stuck at the zero level for years. It means that we will have to constantly save money and postpone the country's development. We cannot afford this," he said.

President Putin suggested that only way to avoid this scenario entails setting clear goals and systematically achieving them, citing Russia's booming agriculture as a case in point. The country is currently earning more from food exports than from arms sales to foreign customers. In 2015, Russia exported weapons worth a record $14.5 billion, while its food exports reached $16.2.

The Russian leader also said that IT industry is one of the most rapidly developing in the country. Its exports hit $7 billion last year although not too long ago they were "nearing zero."

"We are changing the structure of our economy, upgrading existing economic sectors and creating new ones. We are creating modern businesses capable of working on international markets," he noted.

The president pledged that Russia will develop a "next generation digital economy" based on domestic innovation. He added that this was an issue of national security and technological independence.