Friday, May 02, 2014

A Thought About the Russian Economy

The data suggest that the GDPs of Italy, Canada and (what is now) the Russian Federation grew at roughly comparable rates from similar starting points in 1960 until the break up of the Soviet Union. In the following decade, the GDP of the Russian Federation declined. It has grown rapidly since 1999, and essentially caught up with Canada by the beginning of the Great Recession.

I quote from the CIA World Factbook:
Economic reforms in the 1990s privatized most industry, with notable exceptions in the energy and defense-related sectors. The protection of property rights is still weak and the private sector remains subject to heavy state interference. Russia is one of the world's leading producers of oil and natural gas and is also a top exporter of metals such as steel and primary aluminum. Russia's manufacturing sector is generally uncompetitive on world markets and is geared toward domestic consumption. Russia's reliance on commodity exports makes it vulnerable to boom and bust cycles that follow the volatile swings in global prices. The economy, which had averaged 7% growth during 1998-2008 as oil prices rose rapidly, was one of the hardest hit by the 2008-09 global economic crisis as oil prices plummeted and the foreign credits that Russian banks and firms relied on dried up. Slowly declining oil prices over the past few years and difficulty attracting foreign direct investment have contributed to a noticeable slowdown in GDP growth rates. In late 2013, the Russian Economic Development Ministry reduced its growth forecast through 2030 to an average of only 2.5% per year, down from its previous forecast of 4.0 to 4.2%. In 2014, following Russia's military intervention in Ukraine, prospects for economic growth declined further, with expections that GDP growth could drop as low as zero.
I suppose there are a couple of obvious points here:

  • Economically, the Russian Federation is comparable in size to Italy, rather than to the European Union or the United States, and its economy is based on primary products rather than manufactured products or high technology.
  • The high growth rate experienced for a decade may have helped the Russian people feel better about their country (and its government), but President Putin is today facing a long period of little economic growth.

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