Russians work the second-longest hours in Europe after Greece. It may not be a race worth winning.
That’s because in terms of productivity, measured by gross domestic product per hour worked, Russia is behind every country in Europe with 25.9. Greece is almost as bad at 36.2, way below the European Union average of 50, the Organization for Economic Co-operation and Development estimates.
Like debt, low productivity can ravage an economy. Alongside slumping investment and poor demographics, it’s one of three structural constraints that are leaving the shrinking economy “hobbled,” according to Alfa Bank, Russia’s biggest private lender that estimates the country’s potential growth rate at 0.5 percent to 1 percent.
“Russia’s poor growth thus seems to stem more from fundamental factors than economic policy,” Alfa economists Natalia Orlova and Sergei Egiev said in a July 29 research note. While “weak productivity, as well as negative demographics, has been partly substituted for by increasing number of hours worked all over the economy.”
In terms of the number of hours worked, Russia trails Europe’s most indebted nation with 1,982 to 2,034 per person a year, according to the latest data available from the Organization for Economic Cooperation and Development
That may not be much help to the economy. The International Monetary Fund in a staff report issued on Aug. 3 forecast a “muted” recovery in 2016 from Russia’s first recession since 2009 -- a 3.4 percent slump this year, according to the Washington-based lender. It put the nation’s medium-term economic growth at 1.5 percent a year.
That compares with 7 percent average expansion during Vladimir Putin’s first two terms as president in 2000-2008, which coincided with booming oil prices.
“Accelerating the pace of structural reforms is key to raising Russia’s potential growth,” the IMF said.
Things aren’t about to get any better. Technological sanctions imposed over the conflict in Ukraine will weigh on the economy in 2016-2018, according to Alfa Bank.
“We do not see how this external negative effect could be compensated from internal sources,” Orlova and Egiev said.
That will further undercut a country where the average age of capital stock grew across manufacturing in 2011-2013, rising to 20 years from 17 in metals and approaching 22 from 18 in refining, the bank said.
The IMF estimates that sanctions enacted over Ukraine may initially cut real GDP by 1 percent to 1.5 percent. Prolonged penalties may result in a cumulative loss of as much as 9 percent of economic output in the medium term “as lower capital accumulation and technological transfers weaken already declining productivity growth.”
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