September’s research of Gaidar Institute for Economic Policy analyses the rebound of Russian economy after 2008-2009 crisis. The institute concludes that the economic growth model of 2011-2012 doesn’t work anymore and warns of the threat of a new banking crisis.
Consumer spending was the major contributor to the economic growth in Russia during the last two years. More than quarter of household consumption was financed by consumer credit. However, banks don’t have resources for further expansion. Their clients prefer buying dollars and transferring them abroad instead of depositing money in Russian banks. The Bank of Russia became the major provider of liquidity, but recently it tightened its monetary policy.
The inevitable contraction of consumer credit will lead to the economic slowdown. Furthermore, several indicators point to the mounting risk of a full-scale banking crisis. The share of liquid assets in total banks assets has dropped below the level of September 2008, when a previous banking crisis happened. At the same time the “credit deficit” – the difference between banks’ loans and deposits – almost equals the amount of liquid assets. In sum, Russian banking system is ill prepared for the worsening of economic conditions.
Banks will be one more time bailed out with the government’s funding and boost of liquidity from central bank. However, the loose monetary and fiscal policies won’t trigger the much-needed growth of investments, but will fuel inflation. To speed up the economic growth, the government should commit to structural and institutional reforms, restoring the private property rights and guaranteeing fair competition to all economic agents.
