Russian savings are proposed as a source to relaunch the economy
The Russian economy is nearing the complete depletion of the resources that previously drove its growth in recent years. Analysts from the Intersectoral Expertise Center "Tretii Rim" reached this conclusion in a report prepared for the meeting of the Presidential Council for Strategic Development and National Projects. This center is scientifically coordinated by Maxim Oreshkin, who serves as an economic adviser to President Vladimir Putin. The document has been referenced by publications such as "Ekspert", RBC, and The Bell.
In the early 2000s, Russia's economy experienced growth rates of 6-7% annually. However, following the 2008 financial crisis, this growth slowed to approximately 2%. The economic boost from military spending following the invasion of Ukraine temporarily raised GDP growth to 4%. Currently, that growth rate has fallen to 1% last year and is even lower this year, according to The Moscow Times.
Analysts at “Tretii Rim” suggest that mega-projects funded by budget allocations, import substitution efforts, and the recruitment of labor have all reached their limits.
Since 2018, President Vladimir Putin has aimed for the Russian economy to grow at a rate at least comparable to the global average, which is around 3% annually. However, this goal remains unachieved. “Tretii Rim” reports that the current growth potential of the Russian economy is only 1.6% per year. This growth potential is nearly 1.5 times slower than that of the U.S. economy, which the IMF estimates will grow by 2.3% this year, almost three times lower than China's projected 4.6%, and four times weaker than India's anticipated 6.4%.
There are very few available workers in Russia, and domestic demand cannot continually be supported by the state, the “Tretii Rim” highlights. To stimulate economic growth, there is a proposal to shift the focus from a model reliant on public investment to one that leverages private savings. This would involve creating conditions that encourage both individuals and businesses to invest in the economy.
The report states, “There is money in the country. It is necessary to build a mechanism that will transform savings into long-term investment capital.”
Financing investments through the state budget is becoming increasingly challenging. Since the onset of the war, Russia’s cumulative budget deficit has reached 22 trillion rubles. By 2029, the program proposed by the center led by Oreshkin aims to achieve a zero structural deficit in public finances and reduce the budgetary impulse.
In exchange, the economy needs to lower inflation, decrease interest rates, and encourage private investment, according to analysts from "Tretii Rim".
