Russia has slashed its long-term forecast for the economy in the first official admission that the growth model underpinning president Vladimir Putin’s rule is falling apart.
The economy ministry said it expected annual growth of 2.5 per cent to 2030, down from a forecast made in April of 4.3 per cent. It warned that Russian growth would lag behind the global average for the next 16 years.
The downgrade will increase pressure on Mr Putin to launch the structural reforms that advisers have been telling him are overdue.
A prolonged period of disappointing growth could lead to increasing discontent in the regions, which have remained relatively loyal to the president despite protests by the middle classes in Moscow last year.
Next week is likely to bring further bad news with independent economists expecting data for the third quarter to show a continued slowdown. This could make the government’s target of 1.8 per cent growth for the full year difficult to achieve, let alone Mr Putin’s objective of 5 per cent, say economists.
“The drivers behind the brisk economic growth in the years before the 2008 economic crisis are exhausted,” said Alexei Ulyukayev, economy minister. Before the crisis, the economy was growing at an average annual rate of 7 per cent.
Mr Putin may be tempted by the slowdown to replace Dmitry Medvedev as prime minister. Mr Medvedev has repeatedly warned of systemic economic risks and called for decisive reforms, yet delivered little.
But many analysts believe that any restructuring of the economic team will have to wait until after the end of the Winter Olympics in Sochi in February.
Chris Weafer, a senior partner at Macro Advisory in Moscow, cited the high costs of borrowing and a big drop in confidence among consumers and businesses as the main reasons for the slowdown.
The economy ministry said it expected corporate earnings and wage growth to slow and the wealth gap to widen further.
Such trends pose a threat to Mr Putin’s ability to deliver stability, a promise that drove a majority to support him years after the breakdown of the Soviet Union.
On Wednesday, a poll by the Higher School of Economics, a liberal macroeconomic research institute in Moscow, forecast just 1.6 per cent growth this year and 2.1 per cent in 2014.