Destinations Magazine

The Russian Economy: Sputtering

By Stizzard

AT ONE time, Vladimir Putin gloated about Russia’s economic resilience. With most of Europe in recession, Russian growth was the envy of many. It may not have been booming by 7% a year, as in the mid-2000s, but GDP grew by 3.6% in 2012. Yet in the first quarter it rose at an annual rate of just 1.6%, the slowest since 2009. Economists have long warned about falling oil prices and European recession. Oil and gas prices look likelier to fall than to rise; the euro zone remains in trouble. Even so, unlike the drop in 2009 after the financial crisis, the latest slowdown is driven by internal factors.

The Russian economy: Sputtering

The Kremlin cannot just wait for a global upturn and no obvious fixes are to hand at home. In the 2000s the lingering effects of the 1998 devaluation made Russian goods attractive at home, and unused capacity from the Soviet era let firms produce more with little new investment. Oil wealth was redistributed via consumption. This worked, says Natalia Orlova of Alfa Bank, only until Russia had no more spare capacity: “no one in power prepared for the end of this model in advance.”Investment has stayed low because high inflation has pushed up costs and a strong rouble has eroded…

The Economist: Europe

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