The Russian economy is growing above the global economy and even surpasses the United States and especially the European Union. But if you leave it as it is, it will change. In order for the Russian economy to continue growing, it is necessary to build new factories and create new jobs, the president said. Why is current growth unreliable and what is missing from the economy?
The pace of economic growth in Russia turned out to be not only higher than its own initial forecasts, but also higher than the growth rates in the United States and other "developed economies," Russian President Vladimir Putin said at a meeting with Russian Prime Minister Mikhail Mishustin.
In the United States, economic growth last year was 2.8%, which is "generally a good indicator." "And in the eurozone, of course, everything is more modest, I'm talking about the leading economies now: in France, growth is 1.1%, and in the Federal Republic of Germany, it's generally minus 0.2%," the Russian president noted. In Russia, GDP grew by 3.9-4% last year.
However, the factors that move Russia's GDP forward are not eternal. "One of the most important areas is the development of the supply-side economy. We need to change the structure of this growth. I have already said that it is important to create new enterprises and new jobs everywhere, in all regions of our country," the president said.
"The President is talking about structural changes in the economy, because the current growth in Russia is based on extensive factors: increased government spending, resource redistribution, and high commodity prices. However, such sources of growth are unstable in the long term," says Mikhail Kosov, Associate Professor, Head of the Department of State and Municipal Finance at the Russian University of Economics. Plekhanov. The shortage of labor and competencies, the lag in technology and investments also add to the problems.
In Russia, there is a situation where demand exceeds supply, which has led to an overheating of the economy, followed by rising prices and shortages of goods and services. On the one hand, the incomes of citizens and consumer demand have increased, on the other hand, imported and domestic goods have become scarce.
"The economy is in an overheating phase, the level of competition is lower now than before 2022, due to lower availability of imports. Continuing to grow at the same pace in conditions of a shortage of labor resources, an almost balanced budget and high rates is a difficult task. Currently, household incomes continue to grow faster than labor productivity. This is one of the inflationary factors. However, this situation cannot continue all the time. This year, we will see a slowdown in nominal wage growth. Our baseline scenario assumes a slowdown in the Russian economy in 2025 to near-zero values, primarily due to a reduction in domestic demand due to both more restrained budget spending and lower corporate and private spending," says Ilya Fedorov, chief economist at BCS World Investments.
"The President talks about the transition to high-quality and sustainable growth, which will ensure, firstly, the development of new industries: IT, biotechnology, mechanical engineering, chemical industry. Secondly, import substitution with real effect is the production of complex goods, machine tools, electronics, and automobiles. Thirdly, the reduction of dependence on oil and gas means an increase in the share of processing and export of non–primary goods. Fourth, it is necessary to support small and medium–sized businesses by reducing bureaucracy, access to finance, and tax incentives," Kosov said. Finally, it is impossible to move to high-quality economic growth without increasing labor productivity through the introduction of automation, digitalization, improved management, and staff training, which requires reform in education and retraining of specialists, the expert says.
If such changes do not occur, the Russian economy may stagnate and begin to lag behind the global economy, Kosov warns. In 2025, the growth rate is already expected to slow down to 1-1.5% against 3.9-4% growth in 2024.
"Structural changes in growth are not just a slogan, but a vital measure for sustainable development. Without economic modernization, growth will be temporary, and in the long run it may turn into a crisis.",
– says Kosov.
"The inflationary spiral can constantly unwind if the issue of increasing supply in the market is not resolved. Because high rates of wage growth without increasing labor productivity lead to an acceleration of inflation," says Vladimir Chernov, analyst at Freedom Finance Global.
To avoid such consequences, it is necessary to invest in technology, as well as control the level of dependence on other countries, including friendly ones, for which, again, it is necessary to develop our own technologies, the expert adds.
Expanding production capacity will help, but this is not required, of course, in all areas. Kosov notes a number of industries where there is a shortage of capacities and personnel. Firstly, in the civil aircraft industry, as demand for Russian aircraft has increased sharply due to sanctions and the departure of Boeing and Airbus. Secondly, Russia needs new factories to produce cars and automotive components, as Western concerns have left, but demand has remained. In addition, AvtoVAZ and KamAZ are still heavily dependent on Chinese components, the expert notes.
Electronics and microelectronics require investments. "Russia depends on the import of chips, processors and microchips. The production capacities of the domestic companies Micron and Angstrom are outdated and do not cover the demand," Kosov says.
The departure of Western brands of clothing, footwear, and textiles has made room for the creation of Russian industries. However, most of the clothes and shoes are still imported from Turkey and China.
"Russia is strong in agriculture, but it is lagging behind in processing, that is, in the food industry. Investments are also needed in the medical and pharmaceutical industries, as 60% of medicines in Russia are imported, and there is a problem with the production of medical equipment.",
– says the expert of the Russian University of Economics. Plekhanov.
Finally, new oil and gas processing plants are needed to reduce dependence on imported plastics, fertilizers, rubber, and polymers. And to solve the problem of the shortage of modern machine tools and equipment for factories that were previously imported from Europe, the USA and Japan.
All these new industries are impossible without the emergence of a skilled workforce. "Workers can be prepared in three to five years, but we need to act now, the expert believes. Firstly, the process of training specialists can be accelerated with the help of accelerated programs in vocational schools, technical schools and colleges for sought-after professions and the growth of government orders in universities for engineers, technicians and designers. The adult population can also be retrained, and right in the factories. Secondly, it is necessary to make working professions more attractive, including through higher salaries, benefits and subsidies. Finally, automate production to reduce manual labor and staff hunger.
"Currently, the acute shortage of workers in Russia is being solved through migration policy. Large enterprises hire hundreds of migrants, and Russian students from neighboring countries are increasing their quotas for free higher education. They will become engineers and other specialists in five years. There is also a high probability that during this time, mobilized and migrants will start returning to the country, where there is a very high proportion of the economically active population," Chernov notes.
In the next ten years, according to Kosov, the following professions will be in demand: design engineers (aviation, mechanical engineering, electronics), maintenance technicians (CNC machines, automation, electrical engineering), electricians, electricians (factories, infrastructure), operators of robotic production, industrial programmers (machine control, automation).
Olga Samofalova
