Decomposition of Russia's GDP Growth Rate and GDP Dynamics Factors in 2015

Abstract

The results of the estimates made using a method developed by the Gaidar Institute for decomposing Russia’s GDP growth rates show that economic contraction in 2015 is determined by structural causes, according to the two scenarios within an updated forecast of the Ministry of Economic Development (MED). The structural causes are contraction of the fundamental growth factors (labor force and capital) as well as stagnation of the Total Factor Productivity, with a negative contribution of the other GDP growth rate components. In particular, the MED projects that the average annual price of crude oil in 2015 will be less than the long-time average annual, hence the foreign-trade component of GDP growth rates becomes negative in both forecast scenarios. The market-determined component of GDP growth rates in 2015 will continue to be negative and even decline compared to 2014, indicating that cyclical shrinkage of the Russian economy will increase. At the same time, a negative value of the output gap is indicative of that actual GDP will be less than potential GDP in 2015.