A new “scissors crisis” in Russia: Oil prices up but GDP down

Over the past year, the editors of Nezavisimaya gazeta point out, the price of oil has risen by 60 percent but Russia’s GDP and per capita incomes have continued to fall, a pattern at odds with what most expected and one that points to ever more serious problems for Moscow and Russians in the future. For many years, Russian officials have said and Russians have generally accepted the proposition that the country’s GDP and per capita incomes are directly related to the price of oil. When it goes up, they do; when it doesn’t; they fall. But over the past year, “the price of oil rose 60 percent” but the others fell. The average price of Urals oil in the first quarter of 2016 was 31.99 US dollars a barrel. By the first quarter of this year, it had risen 1.6 times, the editors of the Moscow paper say in a lead article today. But the Russian economy “practically did not react at all to this growth in prices” or “strictly speaking,” it reacted with “a small decline” compared to the year before. It cites the conclusion of Andrey Klepach, the chief economist of VneshEconomBank that

“in the first quarter of 2017, industry ceased to be the driver of growth. Processing production showed a fall as a result of low investment demand and the gradual slowing of growth of deliveries for export.”

The economist notes that “judging from indirect assessments, investment activity in the start of the year again began to fall. In the first quarter, the extent of construction substantially contracted after what had been a positive dynamic in the second half of last year.” But officials at the Central Bank and the economic development ministry have claimed the opposite.

“Considering this from the side,” the editors say, “one must acknowledge that the Russian Federation is immersed in a world of parallel statistics,” official ones which suggest that everything is going well and unofficial expert ones that do not support that conclusion. As a result, independent experts long ago ceased to have much confidence in official data.

Despite the underlying trends, the paper notes, there has been a growth in consumer confidence in the first months of this year, the result of low inflation and the strengthening ruble, according to officials. “But there is another explanation,” the editors of Nezavisimaya gazeta suggest. And it is this: the one-time payment to pensioners of a 5000-ruble (60 US dollars) supplement in January could easily explain the small increases the government claims. But if that is the case, then, as Klepach points out, it is “still too early” to be talking about stable growth, even if oil prices are higher.

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