Russia’s Economy

Mark Tuminello’s latest blog post –

Mark Tuminello Russian moneyI read an interesting article on the Project Syndicate website about Russia in light of the current Winter Olympic Games in Sochi.  It turns out the country is on solid economic footing.

There is a prevalent belief in the United States that Russia, after the collapse of the Soviet Union in the 90′s, is in economic despair.  Certainly Russia is a world behind China’s booming and growing economy.  This is incorrect.  Russians currently enjoy a per capita income average of nearly $20,000 per year.  China’s is $10,000.  Extreme poverty?  Close to zero percent.  In China?  Extreme poverty is over 10%.

For some, this may be startling information.  How did Russia get ahead of China so quietly?  With high oil prices and excellent top-level economic policies.  Changes began in the early 90′s, as the government was fighting high inflation and shortages leftover from Soviet days.  In order to become a market economy, they stabilized their macroeconomic policies and reached out for financial assistance from the west.  Many countries wanted Russia to remain weak, and so money was not forthcoming.  It could be here that our misunderstanding begins.  Russia was working to improve their economy, and in turning them away, they were conceptually frozen in time as a struggling loser.

But as the years went on, Russia bounced back from those hard times.  Amidst extreme government corruption, a market economy managed to emerge.  Economic growth soon hit 4% average annual rate, which was nearly a miracle for the country.  Now inflation is at a recent low of 7% and unemployment just a little over 5%.  Their deficit is less than half a percent of their gross domestic product.  All of a sudden, we are seeing a country that actually seems to be in good shape, particularly at a time when so many countries are dealing with much worse than usual numbers.

The country is not resting on these laurels, though.  Oil and gas are expected to continue providing a serious engine for growth in the region, particularly as they are next door to the new consumer market in China.  Down the road, Russians are looking to develop global tech business, hoping this will be a second mighty engine to propel them into the the next centuries.  Under Soviet rule, Russia was a hotbed of industrial technology.  Because of global politics, this industry was pretty much completely cut off from the rest of the world markets.  Russia still has the potential to be a major global player in these industries.  Once they sort out a way to encourage private domestic investment and open their doors a little more to foreign investors, requiring an overhaul of sorts in the political environment, the road may be shorter than some would expect.

from Mark Tuminello

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