Staunton, Nov. 16 – While rising prices for oil and gas have provided a short-term cushion for the Russian economy, Vladislav Inozemtsev says, the longer-term impact of the pandemic, given how other countries are responding, “severely limit Moscow’s room for maneuver over the next decade or two.”
“The Russian authorities will face a choice between raising the living standards of the population at the expense of the budget and endless stagnation and between the investment of funds received from energy exports in modernization (and a parallel reconciliation with the West) and spending on pensions and salaries of public sector employees while keeping up appearances as ‘a besieged fortress,’” the Russian economist says (ridl.io/ru/neft-koronavirus-i-perspektivy-jekonomicheskogo-rosta-v-rossii/).
With only just over a third of Russians fully vaccinated and “a projected 124 days for that to double,” Inozemtsev continues, Russia today is “virtually defenseless.” Immunity will decline faster than vaccinations will take place, and unlike in other countries, deaths will continue to rise alongside increased infections.
“The recently announced pseudo-lockdown,” he suggests, “is likely to pave the way for new restrictions. As a result, only incorrigible optimists can talk about economic growth of more than 1.5% in 2022 today.” And that is the case despite the radical increase in earnings from the export of oil and gas that seems likely.
That boost will allow Moscow to maintain incomes at current levels without any fundamental change in policy, Inozemtsev continues. But unless incomes are boosted, economic growth will not take place; and to give the Russian economy real dynamism will require boosting spending on the population by at least an order of magnitude, something Moscow opposes.
“Under conditions when internal sources of growth are seriously limited by bureaucratic control and the terror of the security forces, only the state can act as an engine of income growth. … but there is a risk that if the expectations of entrepreneurs do not improve, the situation will only end in a spike in inflation.”
In sum, Inozemtsev says, “even ultra-high export incomes can ensure that Russia maintains the current (and by world standards very average) living standards for many years, but Russian consumers are unlikely to be able to give the economy a powerful boost.” And standing in place will leave Russia ever further behind internationally.
The COVID-19 pandemic has made the world much more economically divided than ever before, Inozemtsev points out. First, developed countries have turned to massive debt financing of economic growth,” but Russia like most other developing countries doesn’t have that option at least not now.
Second, the pandemic has confirmed the re-orientation of developed countries towards strategic progress in advanced technologies. … [But] nothing similar happened in emerging markets like Russia’s.” And third, the energy transition other countries are engaged it will mean that only final products will be competitive exports in the future. Russia doesn’t produce these.