Russia warns of 16 more bleak years for economy

MOSCOW (AFP) - Russia's Economy Ministry issued a dire forecast on Thursday forecasting 16 years of negligible growth and global underperformance because of the Kremlin's failure to pursue reforms when oil prices were high.

Economy Minister Alexei Ulyukayev's announcement came only two weeks after Russia reported a disappointing 1.2 per cent third-quarter growth figure.

That outcome means that the economy will have a tough time expanding beyond two percent in 2013 - about half the rate of the United States.

Russian President Vladimir Putin had hoped to see 5 per cent growth this year and reshuffled his economic team in the summer when that goal slipped out of reach.

Mr Ulyukayev cautioned that "the average rise in gross domestic product will range between 2.5 and 3.0 per cent until 2025". He said this will be followed by "a certain drop-off in the last five years" that will see the annual rate through 2030 reach 2.5 per cent.

The Economy Ministry this spring had expected annual growth in the period to reach more than four percent.

Mr Ulyukayev also warned that Russia will now have a tough time fulfilling the massive spending promises that Putin made when he assumed his third term in the Kremlin in May 2012.

"The pace of Russia's economic growth will fall behind the global average in the forecast period," Mr Ulyukayev observed.

The dramatic economic downgrade underscores the problem Putin's appointees have had both identifying and resolving Russia's most damaging economic problems.

Moscow's Vedomosti daily summed up the grim mood by lamenting that "Russia is preparing for 10 lean years".

Russia enjoyed a boom during Mr Putin's first two terms as president between 2000 and 2008 thanks to soaring prices for the country's energy and commodity exports.

Annual growth then averaged at more than seven percent and Putin had promised a quick return to those rates following a 7.9 per cent contraction in the 2008-2009 global economic crisis.

But analysts blame Russia for then failing to make investments in the non-energy sector needed for it to attain sustainability and become inured to global oil price swingings.

Mr Ulyukayev conceded the same point by stressing that "the factors behind sharp economic growth in the pre-2008 crisis years have been exhausted".

Russia has also suffered from persistent capital outflows and low rates of investment linked to the business community's refusal to trust the independence of the courts.

Mr Ulyukayev said he expected capital investments in the period to fall to 4.3 per cent from the 4.7 per cent envisioned at the start of the year.

Some in Putin team had spent recent months blaming this year's poor performance for the slow pace of economic recovery in the European Union - Russia's largest trading partner.

But Vedomosti pointed out that Ulyukayev's report "made almost no change to its assessment of external conditions. The revision is associated with domestic factors." A poll of 21 economists released by Moscow's Higher School of Economics on Wednesday also showed expectations of below 3 per cent annual growth for the next nine years.

"3 per cent growth, which just recently seemed incredibly low, now looks almost unreachable," the Higher School of Economics report said.

"Most experts have a negative view of the government's excessive economic intervention, the quality of state and other regulation, lack of competition and excessive military spending," said the review.

It added that 68 per cent of the economists polled said that Russia could soon face "an economic crisis linked not to a drop in the price of oil, but exclusively to domestic factors".

The Capital Economics consultancy in London said that Ulyukayev's comments meant that "Russia's government accepts weaker growth is here to stay". It attributed the strong performance during Mr Putin's previous stay in the Kremlin to one-off factors such higher oil prices and productivity improvements spurred by initial post-Soviet reforms.

"The upshot is that 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," Capital Economic said in a research note.