Economy
The crisis makes its own corrections in social and economic plans and government promises. Some of them become impracticable even in theory. Among such promises is the task set by then President Vladimir Putin in July 2003 of doubling the country's GDP within ten years. Even then, many economists doubted that this task was feasible. However, using some adjustments and forced argument, a formula was devised which, it seemed, made it possible to receive the desired effect. It was decided to take the year 2000, not 2003, as a reference point: at that time, the economy was growing exponentially after the 1998 crisis due to the effect of the poor economic base. Several months ago Vladimir Putin confirmed his forecast and promised a doubled GDP by late 2009 or early 2010. However, the latest forecasts and data of the Federal State Statistics Service (Rosstat) show that the present government will have to take this promise off the agenda.
On January 27, Rosstat published the main social and economic indicators for December 2008 and all of last year. Whereas the annual indicators were not too bad (6% GDP growth), the December data were disappointing. There was no economic growth and the country's GDP fell by 0.7% from December 2007. Russia's economic dynamics are negative: with every passing month the GDP and industrial production indicators are getting lower. More and more businesses have to curtail production, cut the workforce and reduce wages. The forecasts are not encouraging either. Even the economic development ministry, from which we used to expect unjustifiably optimistic forecasts, projected a fall in GDP by about 0.2% instead of growth. On January 30, Elvira Nabiullina, economic development minister, confirmed that the economy was in for hard times over the next three quarters. Any talk of doubling the GDP is inappropriate in these conditions. The country is living through a period of stagflation: production is not growing and inflation is too high. It is extremely difficult to get out of this situation when the monetarists' favourite method of injecting money into the economy in order to raise demand and stimulate production works poorly. The money printed in the stagflation period push up prices rather than stimulating production.
The forecast made public by the ministry of healthcare and social development on January 29 was also unpromising: deputy minister Maxim Topilin said that the number of officially registered unemployed might double to 2.9 million in certain months against the present figure of over 1.5 million. If both official and real unemployment grows at the same rate (the majority of unemployed do not register on the labour market), the number of people without jobs and wages will grow from the present 5.8 million (according to Rosstat's data) to 10 million and more, which accounts for over 14% of the economically active population. One-company cities will find themselves in a most difficult situation. If their companies suspend production, a larger portion of the cities' population will lose jobs.
If the social and economic situation continues worsening, as it is now, the social and economic gains of the best years of Putin's presidency will be lost or seriously devalued, and this will happen during a period of high fuel prices. In the early 2000s, oil companies could only dream of the present oil price of $41-$42 per barrel, as oil was 1.5-2 times cheaper than now. This means that the current model of Russia's social and economic development is wholly dependent on export revenues from fuels and other raw materials and that this country is viable only when these commodities see an increase in value.
