(Bloomberg) -- Russia is finding economic recoveries aren’t what they used to be back when President Vladimir Putin was just getting started.
The economy of the world’s biggest energy exporter is muddling through another quarter, failing to gain much traction after its longest recession of Putin’s almost two-decade rule. By contrast, the crises in 1998 and 2009 set the stage for sharp rebounds as stronger oil prices and a surge in domestic demand and output helped make up lost ground.
What little growth Russia has eked out so far is a result of factors that may not last. In the months before Sunday’s presidential election, easily won by Putin, salary boosts and state-sponsored infrastructure works steadied an economy that ended last year on a surprise downturn.
But growth in industrial output slowed more than predicted last month, and data on Wednesday showed retail sales also fared worse than estimated, growing the least since July. That’s despite bigger-than-forecast increases in real wages and disposable incomes in February from a year earlier.
“Infrastructure projects and election-linked wage adjustments are factors in play in the first half of the year,” said Natalia Orlova, chief economist at Alfa-Bank. “In the second half of the year, their impact will diminish or fade altogether.”
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The stop-and-go economy lays bare the challenges facing Putin in his new six-year term as he considers a spending spree on health care and roads in a bid for a “decisive breakthrough” to raise living standards. But a seesaw in oil prices, alongside tight fiscal and monetary policies, are constraining growth that’s already not too far off its potential.
Faced with Russia’s weak economic prospects, the central bank signaled last month that its shift to a “neutral” stance could be completed already in 2018, or a year earlier than planned. It’s already indicated that an interest-rate cut is all but certain at a meeting this Friday, with most economists surveyed by Bloomberg seeing a quarter-point decrease in the benchmark to 7.25 percent.
“The mix of the very strong real wage and income growth but non-accelerating consumption and other major segments of the economy still justifies the Bank of Russia’s plan of policy normalization over 2018,” said Dmitry Polevoy, an economist at ING Groep NV in Moscow. “We think the central bank will cut by 25 basis points, but it will be clearly weighed against a 50 basis-point cut option.”
The dim outlook won’t sit well with Putin, who’s said that Russia needs to harness new sources of growth to outpace the global economy. But at least for the next three years, consumer demand will remain the main driver of expansion, according to state development lender Vnesheconombank.
Output was running close to potential last year before a slowdown in the second half opened some slack, according to Bloomberg economist Scott Johnson. That supports the central bank’s case for bringing interest rates to the level it considers neutral in 2018.
Without structural reforms, the Bank of Russia says the economy won’t grow faster than about 1.5 percent. Gross domestic product added an annual 2 percent in January after a 1.4 percent gain in December, according to the Economy Ministry.
It’s now on a trajectory of “slow but sustainable growth,” according to the central bank’s research and forecasting department, which attributed the acceleration at the start of the year to “one-off factors in industrial production which will most likely weaken in the coming months.”
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