Russia's economy is at risk of sliding into recession by autumn and the government may need to introduce stimulus measures to shore up growth, the country’s economy minister Andrei Belousov has said.
"We are not in recession for now, but we may get there - there is such a risk," Belousov told reporters a day after his ministry slashed its growth forecast for this year.
"I think that, if by autumn we don't see growth for some period, we may slide into recession," he said.
A year after Vladimir Putin returned to the Kremlin with calls for a "new economy" to boost investment and shake up state-run industries, Russia's $2.1 trillion economy is close to stagnating.
The Economy Ministry cut its growth forecast for this year by a third to 2.4% yesterday after a disappointing first quarter.
That puts Russia on course for its worst showing since 2009, when the economy contracted sharply as a result of the global financial crisis.
However, the weakening outlook does not necessarily herald a full-blown recession, defined in economics textbooks as two consecutive quarters of negative growth.
Julia Tsepliaeva, an economist at BNP Paribas, said the ministry's comments were probably aimed at putting more pressure on the Finance Ministry and the central bank, who have been rebuffing calls for additional monetary stimulus for the sake of budget stability and inflation targeting.
"When the picture is overdramatised you start to think that this is done on purpose, to turn about the politics in one's favour," Tsepliaeva said.
Indeed, deputy economy minister Andrei Klepach said today that economic growth should accelerate to 2.1% in the second quarter, compared with a year earlier, and to around 3% in the second half of the year.
Belousov's warning reflects a debate over whether the economy needs monetary stimulus to boost growth nearer to the Kremlin's target rate of 5%.
Putin's choice to run the central bank, Elvira Nabiullina, has emphasised growth as a key policy goal and dialled back ambitions for reducing inflation that, at over 7%, is now running above target.
Economists expect the central bank to cut key rates, most of which have been on hold since December, when Nabiullina takes office in June and possibly before then.
However, with Russia on the brink of stagflation many argue that structural reforms, not rate cuts, are what the economy really needs.
Gross domestic product grew at around 1% in the first quarter from a year earlier, weighed down by lacklustre investment and a decline in exports of strategic commodities such as natural gas that were hit by a slump in the European market.
The debt crisis in euro zone member Cyprus, a financial centre through which a quarter of Russian foreign investment and lending flows, has heightened concerns that the Russian economy will be starved of capital.
Russia instituted a new fiscal rule last year that ties spending to a historical average of prices for oil - Russia's main export - while capping the budget deficit at 1% of gross domestic product.
That may restrict the government's ability to ramp up state spending, but does not rule out other measures designed to improve Russia's investment climate and boost the flow of credit into the economy.
"We will propose economic stimulus measures. We will have a meeting with the president," said Belousov. "Measures should be taken, as we need to solve the situation we got into in order not to slide into recession."
Russia's post-crisis recovery has been heavily dependent on the consumer, while a hefty increase in government spending before Putin's election in March 2012 to a third Kremlin term also kept the economy ticking over.
The government is also considering ramping up sales of state assets to raise funds that could be committed to stimulus spending, including the possible sale of a 19.5% stake in state oil major Rosneft.
"Although we don't expect Russia to fall into recession, authorities' concerns are understandable and a moderate monetary or fiscal stimulus would be appropriate, in our view," said Anatoliy Shal, chief economist at JP Morgan in Moscow.
"In fiscal policy, using the back door to bypass the budget rule would be one way to respond to economic weakness," Shal added.