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Russian Economy

GDP per capita

IMF 2005 US$
2010 14,299
[ source ]
Russian forces attacked Ukraine on 24 February 2022. President Vladimir Putin called Russia's actions a "special operation" meant to demilitarise Ukraine and purge it of what he saw as dangerous nationalists. According to estimates as of March 2022, the country’s gross domestic product (GDP) can shrink between eight percent and 15 percent in 2022, while inflation could hit 20 percent. The sanctions, meanwhile, have undermined Moscow’s ability to service its debt and resulted in a massive withdrawal of international companies from its market, raising fears of skyrocketing unemployment.

The European Bank for Reconstruction and Development said 31 March 2022 Russia’s economy will contract by 10 percent this year while Ukraine’s gross domestic product could shrink by as much as 20 percent. Before the Russian invasion, the bank had predicted that the Russian economy would expand by 3 percent and that Ukrainian GDP would grow by 3.5 percent this year.

The Russian currency should be worth 70% more against the U.S. dollar — 23 rubles per $1, rather than its current level of around 76.7 — British newspaper The Economist calculated in its Big Mac Index. The Big Mac Index compares the price of the McDonald’s burger across the world to calculate whether national currencies are undervalued or overvalued. “A Big Mac costs 135 rubles in Russia and $5.81 in the United States. The implied exchange rate is 23.2. The difference between this and the actual exchange rate, 77.4, suggests the Russian ruble is 70% undervalued,” The Economist said 02 February 2022.

In a March 2021 article in FT Magazine, journalist Henry Foy wrote that Russia’s “GDP per capita is 30 per cent lower than in 2013” — a surprising claim as neither Russia’s total GDP nor its population had changed so drastically over the years in question. In fact, inflation-adjusted data from the IMF suggest the decline in Russia's GDP per capita from 2013 to 2020 was less than 2%.

Russia entered the 2020 COVID crisis with the lowest government debt among the 20 largest emerging economies, just 14 per cent of gross domestic product. It also had the highest government surplus, the fourth highest current account surplus, and the fourth largest foreign currency reserves: some $580bn, up from a 2015 low of $350bn. Economic growth had averaged barely 2 percent over the past decade. Since 2014, Russia had fallen off the list of the world’s ten largest economies. Despite falling living standards and exposés of state corruption, polls suggest more Russians think the country is moving in the right direction than the wrong one. A crisis scarred nation seems to prize stability.

Vladimir Putin made efforts to raise Russians' living standards a cornerstone of his six-year term. Economic troubles had damaged the popularity of Putin, whose first two terms in 2000-08 came amid a strong growth spurt fueled by high prices for Russia's oil and gas exports. Lower oil prices and Western sanctions imposed over Russia's interference in Ukraine, among other actions, have contributed to much slower growth. Russians' incomes will fall for a sixth consecutive year in 2019, experts from Moscow's Higher School of Economics (HSE) and Russia's Presidential Academy of National Economy and Public Administration (RANEPA) said 28 May 2019. Russia's Economic Development Ministry had projected real incomes to reverse the five-year slump and grow by 1 percent in 2019, based on a methodology that has been criticized as outdated.

A politically controversial Rosstat poll from April 2019 showed that an estimated 80 percent of Russian families find it difficult to make ends meet, and that 12.9 percent of the population, or 18.9 million citizens, lived at or below the poverty level in 2018.

Russia’s economy slowed sharply in the first quarter of 2019, with the government placing the blame on reduced consumer demand following an unpopular hike in value-added tax (VAT). The Russian statistic service Rosstat said on May 17 that gross domestic product (GDP) rose just 0.5 percent in the first three months of 2019 from the same period a year earlier. The figure was the lowest since late 2017, when growth was 0.3 percent. The Economics Ministry had previously forecast GDP growth at 0.8 percent for the quarter. The central bank had predicted an even-stronger quarter, with growth seen at up to 1.5 percent. Russia’s economy only returned to growth in 2017 after suffering two years of recession in 2015 and 2016.

Putin set the goal of bringing Russia into the top five economies of the world in 2011, saying it was an "ambitious goal" to reach that status by 2021. According to the World Bank, Russia was the world's 12th-largest national economy by GDP in 2016, just behind South Korea and ahead of Spain.

By 2017, Russians' real disposable income had fallen by 12.3 percent since the beginning of the economic crisis in 2014, writes the TASS news agency, citing a report prepared by the Russian Presidential Academy of National Economy and Public Administration. The report concludes that the continuing fall in the population's real income has led to an increase in the poverty level, which in the January-September 2016 period was 13.9 percent. This indicator is higher than the level from similar periods in 2012-2014, says the report. In May 2016 the average monthly salary in Russia fell to $500, which is below the average monthly salary in China and Brazil, and only slightly higher than in India and Bulgaria.

According to a World Bank report published on 06 April 2016, the bank worsened its forecast for Russia's GDP in 2016, with the international organization now expecting the Russian economy to contract by 1.9 percent instead of 0.7 percent as previously estimated. Meanwhile, the forecast for the growth of the country’s economy in 2017 is expected to be 1.1 percent and not 1.3, as predicted before. The World Bank's pessimistic scenario is based on the average oil price falling to 30 dollars per barrel in 2016. However, in 2017 oil may reach a threshold of $40 per barrel, and $45 in 2018. This would see GDP increase by 0.5 percent in 2017 and by 2 percent in 2018.

Russia's currency slumped to a record low, trading at 82 rubles per U.S. dollar and 89.55 per euro on 20 January 2016. The ruble's previous all-time low was 80.10 per dollar in December 2014. The declining value of the ruble comes as global oil prices continued to fall, trading on January 20 at around some $27.45 per barrel and even briefly going under $27 per barrel.

By the end of 2015 there were incidents of wages being withheld to emergency services in various regions of Russia, citing the country's economic difficulties as the reason. The servicemen were told budget reallocations were expected to resolve the situation in the new year. It had been quite some time since Russia hasn't been able to pay the salaries of its government employees. The last two times in recent history were after the collapse of the Soviet Union in 1990 and again during the financial crisis of the late 1990s. It was the 1998 economic crisis - when the ruble lost a third of its value and inflation was running at 300 percent - that finally destroyed the popularity of Russia's first post-Soviet and democratically elected president, Boris Yeltsin.

The Russian economy underwent tremendous stress in the 1990s as it moved from a centrally planned economy to a free market system. Difficulties in implementing fiscal reforms aimed at raising government revenues and a dependence on short-term borrowing to finance budget deficits led to a serious financial crisis in 1998. Lower prices for Russia's major export earners (oil and minerals) and a loss of investor confidence due to the Asian financial crisis exacerbated financial problems. The result was a rapid and steep decline (60%) in the value of the ruble, flight of foreign investment, delayed payments on sovereign and private debts, a breakdown of commercial transactions through the banking system, and the threat of runaway inflation.

Still, Russia weathered the crisis well. In the nine years following the financial crisis, GDP growth averaged 7% due to a devalued ruble, implementation of key economic reforms (tax, banking, labor and land codes), tight fiscal policy, and favorable commodities prices. Household consumption and fixed capital investments have both grown by about 10 percent per year since 1999 and have replaced net exports as the main drivers of demand growth. Inflation and exchange rates have stabilized due to a prudent fiscal policy (Russia has run a budget surplus since 2003). The government created a stabilization/rainy day fund ($156 billion at the end of 2007), and has the third-largest foreign exchange reserves in the world (close to $476 billion at the end of 2007) which should shelter it from commodity price shocks.

As Russia’s economy continued to slide into recession under the effect of Western sanctions and falling relative incomes, figures published by Russia’s state statistics bureau Rosstat showed that 16 million people, or 11 percent of the population, found themselves below the poverty line in 2014. However, Russian experts claimed that this figure is far too low. They warned that the official figures underestimate the problem and that in 2015 almost one in five Russians may find themselves in dire financial straits.

A specific feature of Russian poverty is that it is often those who work who are the most affected. The salary level of many people is close to the subsistence level or slightly above. According to official statistics, this is the case for 13 percent of Russian workers. It has become impossible to live on a small pension or salary. According to the Public Opinion Foundation, 47 percent of the population consider themselves “the working poor.” It's hard to give up what you used to have, so people feel they have become much poorer, even if this is not quite the case.

Russian Prime Minister Dmitry Medvedev said that investors had an “irrational fear” of Russia, a country he described as "incomprehensible" and "sometimes unpredictable," in a long opinion piece published 27 September 2013 in the Russian business newspaper Vedomosti. The article of over 3,000 words was titled “The Time of Simple Solutions Has Passed” and focused on the economic situation, outlining the former president’s strategy to turn around Russia’s slowing economy and calling for greater diversity, efficiency and transparency, though analysts said the article did not contain any new ideas.

“Investors still have an irrational fear of working in incomprehensible, and sometimes unpredictable, Russia,” Medvedev, who was president of Russia from 2008 to 2012, wrote. “And they also have a completely explainable distrust of public institutions. Saddest of all, this includes the legal system and law enforcement bodies.” The article also included a quote attributed to 19th-century Russian writer Fyodor Dostoyevsky about how capital prefers "internal and external calm." To achieve economic growth, Medvedev suggested decreasing the presence of the state in the Russian economy, investing in the country’s human resources, cutting Russia’s dependence on income from commodity exports, and supporting small and medium-sized businesses.

Skolkovo is a business innovation center located outside of Moscow. Prime Minister Dmitry Medvedev spearheaded development of the government-built and run incubator after he visited Silicon Valley. Skolkovo is innovation in the Russian tradition. Instead of creating broad conditions where entrepreneurs could thrive (rule of law, good investment climate, independent judiciary, etc.), Medvedev decided to centralize innovation in a government-owned incubator. Skolkovo supports work in five sectors: space, information technology, biomedical, energy and nuclear.

President Putin stated that improving the investment climate in Russia and increasing foreign direct investment (FDI) is a priority for his tenure as President. This commitment led to a variety of reforms in 2012 that sought to reduce administrative barriers and provide incentives for foreign businesses looking to invest in Russia. The capstone of this commitment was Russia’s accession to the World Trade Organization (WTO) in August of 2012, reducing tariffs across the board and securing a variety of market-opening acts by the Russian government.

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Page last modified: 20-04-2022 19:59:47 ZULU