“The picture is much worse”: the State Duma reacted to the optimistic report of the head of the Ministry of Economic Development Reshetnikov

The minister surprised the deputies with a favorable picture of the state of affairs in the country

Speaking on October 11 in the State Duma as part of the government hour, the head of the Ministry of Economic Development, Maxim Reshetnikov, painted an extremely benign picture. Having talked about the state of the Russian economy, the minister did not mention any of its many pain points in his report. He reminded me of a gardener whose farm blooms and bears fruit, smells fragrant and bursts into the sky with lush inflorescences. Most often, the official used the words “growth” (absolute first place) and “issue under control.”

According to Reshetnikov, the economy has completed the recovery phase and is growing faster than expected in many key indicators. Even under sanctions, according to the World Bank, it became one of the five largest economies in the world (by purchasing power parity, PPP). “Russia has overtaken Germany… We are slightly behind Japan, the top three are China, the USA and India,” the minister explained. The task of the next stage, set by the president, is the transition to long-term economic growth.

“At the end of 8 months, GDP grew by 2.5%, fully compensating for last year’s decline and exceeding the level of 2021,” Reshetnikov said. – Industry is growing confidently, primarily due to manufacturing industries. Construction is growing at high rates, agriculture is developing, investment activity remains high, and consumer demand is growing. Against the backdrop of record low unemployment, wage growth in real terms amounted to 7.1% over the seven months of this year. The current economic dynamics have made it possible to improve the forecast parameters: by the end of the year, we expect growth of 2.8%. And then by 2026 the economy will reach a stable growth rate of just above 2%.”

The radiant invoice presented by the head of the Ministry of Energy contrasted sharply with the stern theses that have come from the Bank of Russia in recent weeks. Take, for example, the press release of the Central Bank published following the results of the last meeting of the Board of Directors on the key rate. The document is full of internal drama and even some hopelessness. His main message: the economy is dangerously overheated, as consumer demand, inflation and the ruble money supply are growing; the population spends a lot, the national currency continues to depreciate. And this whole trend cannot be reversed.

There is a lot to add to the list of real economic problems: there is a sharp imbalance between exports and imports in favor of the latter; and a clear shortage of hard currency (and not low-liquidity Indian rupees, Chinese yuan, UAE dirhams and other banknotes of “friendly” countries); and constantly rising prices for gasoline and diesel fuel, and an acute shortage of highly qualified personnel, and the half-dead automobile and aviation industries; and generally low labor productivity; and a debt bubble inflated in the mortgage market; and ungodly high housing and communal services tariffs; and the increase in the cost of fertilizers mentioned by the speaker of the State Duma Volodin over the past two years (from 28% to 87% for different groups), seeds (up to 50%) and agricultural equipment (KamAZ – by 41%, tractors – by 25.8 %, combines – up to 80%), as well as a 33% drop in the price of third-grade wheat. By the way, the speaker of the State Duma did not agree with Reshetnikov’s statement about the super-profitability of the agricultural industry.

By the way, the inclusion of Russia in the top five largest economies in the world in terms of purchasing power parity, mentioned by the minister, is not a significant achievement. According to Sergei Khestanov, macroeconomics adviser to the general director of Otkritie Investments, PPP is a conditional indicator that greatly flatters developing economies and is liked by the World Bank and the IMF. As a rule, when GDP is converted from nominal figures to PPP values, the economies of developing countries swell significantly. And if a country requires imported goods, then they have to be purchased at the market rate, and not at the “ideal” rate that international organizations calculate using the PPP theory.

The Duma plenary session was not without some pressing questions for Maxim Reshetnikov. For example, Vladimir Koshelev from the LDPR faction asked where he could get acquainted with reports on the results of modernizing the housing and communal services infrastructure. The parliamentarian recalled that at the end of September the Ministry of Economic Development announced another increase in utility tariffs by 9.8%, justifying the measure by the need for such modernization. “Meanwhile,” Koshelev said, “citizens regularly contact us that they have serious problems with housing and communal services, interruptions in hot water, electricity, and prices that are constantly rising.” The subtext is clear: where do taxpayers’ money actually go?

“The picture is not bad,” said Valery Hartung, a fair Russian representative, sarcastically, assessing Reshetnikov’s presentation, “But if you compare it with the economic development forecast, which was submitted to the government together with the budget, the picture is much worse. In the future, we see that the rate of economic growth is fading.”