GDP Growth of 0.4% in 2016: What Lies Behind It

So, the government has proudly announced that the economy grew by 0.4 percent. Not much, but it is growth.

It is obvious that this growth is being achieved through government injections into the economy. That is why we see growth in construction, agriculture, and transport. Such growth can be called artificial. Why? Because it is not the production sectors that are growing but the consumer-oriented ones, and as soon as the injections stop, there will be a severe hangover. Construction is growing on the back of housing for which there is no real demand, because people have no money to buy it. Moreover, housing, as a consumer product, cannot generate added value in the future, and as soon as the money to finance construction runs out, the effect of this measure will vanish without a trace. Clearly, in this situation, financing infrastructure would yield a greater effect in the future, and it would also stimulate the construction industry.

Industry as a whole contracted by 2 percent, and mining by as much as 4.4 percent.

Mining accounts for 50 percent of the structure of industry, manufacturing for roughly 40 percent, and the remaining 10 percent is electricity and water supply.

In mining, everything is bleak: output is falling, and falling practically across the board. The leaders of the decline are coal and crude oil production, that is, our energy resources. Oil and gas account for 80 percent of our mining sector.

Manufacturing showed growth of 0.6 percent. And all the news outlets are trumpeting that manufacturing is growing, which means that our State Program of Industrial and Innovative Development (SPIID) is working after all.

Of manufacturing, 47 percent is metal processing and another 8 percent is oil refining. In other words, these are the downstream stages of the mining industry. Moreover, in metallurgy, you simply cannot sell your product without the next processing stage.

So, within the structure of manufacturing growth, the main contribution came from metallurgy, which grew by 7 percent.

Accordingly, you can calculate mathematically that if we remove from the 0.6 percent growth the portion attributable to growth in the secondary processing of metals, we get an amusing result: a 2.7 percent decline in output across the whole of manufacturing. It would be rather foolish to classify the secondary processing of mining products as innovative, and it is clear that we have no diversification of production and no growth in the non-resource sector, because metallurgy is, after all, the same resource sector.

What do we have in the end? Mining fell by 4.4 percent. The non-resource sector contracted by 2.7 percent.

It was all offset by metallurgy.

From this follows a conclusion that every realist in our country already knows: we can grow only in the basic industries, and to climb out of the hole, we need to focus on the basic industries rather than on innovative and high-tech ones.

But what do we see? We are doing everything except the main thing. You should not kill the cow that gives the milk.