UPDATE 3-In blow to Putin, Russia slashes long-term growth forecast
* Russia to grow 2.5 pct annually by 2030
* Downbeat forecast a blow to Putin, government
* Lower growth seen despite rising oil prices
By Lidia Kelly and Darya Korsunskaya
MOSCOW, Nov 7 (Reuters) - Russia acknowledged for the first time on Thursday that its economy would lag global growth over the next two decades, setting the stage for an era of stagnation that could threaten President Vladimir Putin's grip on power.
Economy Minister Alexei Ulyukayev forecast that Russia's economy would grow at an average rate of 2.5 percent during that period - down from an earlier 4 percent and half the rate Putin targeted before his return to the Kremlin last year.
The downward revision casts Russia as the poor relation in the BRICS group of large emerging markets that includes Brazil, China, India and South Africa. The ministry expects the BRICS to grow at a 5.2 percent clip during that time.
With the ministry expecting global economic growth to average 3.4-3.5 percent, the outlook threatens to make a mockery of Putin's oft-repeated pledge to lift Russia into the world's top-five economies by the end of this decade.
And it is still based on an oil price forecast many analysts view as over-optimistic, showing just how much Putin's Russia, the world's largest oil producer, relies on not only high, but rising, oil prices to prosper.
"To a large extent the forecasts are catching up with reality," said Neil Shearing, chief emerging markets economist at Capital Economics in London.
He estimates Russia's long-term growth potential at 2-2.5 percent, in line with the view of the central bank which sees the economy running at close to capacity.
"It could go to 3.5 percent or 4 percent if you have a really reform-minded government," he said. "But I don't think that applies to current reform, of which there is little prospect at the moment."
STAGNATION AS POLICY GOAL?
Putin, who faced large-scale opposition protests in Moscow and St Petersburg before his election, has taken a more authoritarian track in his third, six-year, term.
A lack of reforms in an economy hamstrung by red tape, corruption and weak rule of law has led to suggestions that the government has no recipe to achieve a turnaround.
Satirists and economists alike increasingly compare the 61-year-old Putin with Soviet leader Leonid Brezhnev, whose rule from 1964 until he died in 1982 projected an image of stability that ultimately proved illusory.
"Stagnation is starting to look like a policy goal in Russia," commented Sanna Kurronen, an analyst at Danske Capital, adding that it was vital for Russia to invest to replace its ageing Soviet capital stock.
Prime Minister Dmitry Medvedev admitted last week in an interview with Reuters that "there is no magic formula to boost growth. In any case, if there is, we do not know what it is."
The pessimistic outlook may increase pressure on Medvedev, who served a single term as president from 2008 until 2012, and whose political end has been long foreseen by analysts since he became premier in May 2012.
Ulyukayev, a liberal technocrat, moved to the government from the central bank in June after being passed over for the governor's job by Putin.
The bank's new head, Elvira Nabiullina, has prioritised fighting inflation over promoting economic growth. She was hand-picked by Putin in a move typical of a leadership style that plays factions against each other to prevent the emergence of an obvious potential successor.
Unusually, the government's pessimism was not shared by some of the foreign investors that have stayed the course in its potentially profitable but challenging market of more than 140 million people.
"Russia is a country that will deliver higher growth relative to the eurozone and where there is not this plethora of regulatory constraints on banks or fees," said Frederic Oudea, chief executive of French bank Societe Generale.
"Even without looking all the way to 2030, this is a market that offers potential," Oudea told reporters on a conference call. SocGen reaffirmed its commitment to Russia after sacking the head of its local unit after he was charged with bribery.
NO-ONE ELSE TO BLAME
In a frank admission, the Economy Ministry said there was no-one else to blame for the poor outlook but Russia itself.
The ministry said one of the reasons for latest changes is that now it is taking a conservative scenario as the base scenario, while in the spring it took a moderate outlook.
"Even sustaining the generally low rate of growth that we have projected will require a lot of hard work," Ulyukayev told a news conference.
Domestic and foreign direct investment will remain weak, as will growth retail sales, exports and wages, the forecast cautioned, while business will be hampered by a lack of competitiveness and rickety infrastructure.
It said oil prices would rise to $160-$170 per barrel by 2030. In real terms, adjusted to account for inflation after 2010, this translates into a range of $90-$110 per barrel throughout the forecast period.
That is more bullish than expectations of a decline to $80 per barrel in real terms by 2020 in a recent Reuters poll of analysts who took greater account of the U.S. shale energy revolution that has put Russia on the back foot.
"It is good that the government...prefers to be realistic rather than live in denial," said Sergei Guriev, a prominent economist and former adviser to the government who has become an outspoken critic of Putin and now lives in exile in France.
"On the other hand, it shows that Russia has hideous internal problems."
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