Russia’s Economic “Stagnation” In Global Perspective: Continued

It is now a staple of “common wisdom” to such an extent that there is little point in digging up specific news items. Bound up in red tape and crushed by the weight of state regulations, the argument goes, the Russian economy is doomed to years of renewed Brezhnevite stagnation – with the government increasing repressions and anti-Western rhetoric to divert attention away from its failure to raise living standards.

But is this actually a valid viewpoint? Russia’s rate of GDP growth has plummeted relative to 2010, when it was emerging out of a deep recession. In 2010 and 2011, it was typically at around 4% to 5%; by Q1 2013, it was just 1.6%.


Now yes, that looks pretty bad – even though its far from being an outright recession (aka two consecutive quarters of negative growth, crudely defined). But one could credibly make the argument that a middle-income economy that still has much room for productivity increases, like Russia, should be growing considerably faster. But while that is true enough, it should nonetheless be pointed out that to the extent that Russia is in stagnation – so is the entire world, bar China.


See the similarities between the two graphs? Now imagine China were removed from the second one. In that case, they would virtually be mirrors of each other. Or how about simply comparing Russia’s growth rate to comparable CEE countries that are widely considered to be much “freer” and less corrupt:


The rather banal reality is that Russia is far from alone in experiencing a big slowdown among its middle-income peers: Especially in comparison to many of the Central-East European countries, some of which are in outright recession, but also fellow BRICS members Brazil and South Africa – not to mention Mexico, South Korea, Turkey, Argentina, and most other emerging markets – which have likewise seen slowdowns to the low single digits in the past few months or year.

As such, the question isn’t so much “Why is the Russian economy stagnating?” but more like “Why are pretty much all developed countries and emerging markets, except China, stagnating if not in outright recession?”


  1. kokoshmel says:

    Interesting. But it should be mentioned, that statistics on China also can be far from real facts, so to say “lie, monstrous lie and stalinist statistic”.

    • Fedia Kriukov says:

      What is the definition of “Stalinist statistics” and how were economic statistics in USSR until 1953 different from those in contemporary countries at the same level of economic development? Or do you just like using random irrelevant terminology?

    • The concern over Chinese statistical fiddling is much ado over nothing.

      • Interesting article! Thanks, I will read it tomorrow. But I am afraid it will not make me more sure, than I am now – economists are always so confident in their methods and data, but they missed so much “bubbles”.

  2. Chrisius Maximus says:

    I thought that there wasn’t Brezhnevian stagnation even under Brezhnev, but that the economy was growing steadily.

    • From about 1975 it stopped gaining (in relative terms) on the developed world, and by 1980 was slowly slipping back. It was stagnation through and through. Here are some graphs.

      • Chrisius Maximus says:

        This is relative, not absolute. If I am in a race and my competitor has put on a burst of speed, I am not slowing down.

  3. There’s also this, which was made public 1 July:

    Last year, according to the World Bank, the Russian economy overtook Germany’s. Interestingly, almost exactly the same figures were published back in May on the propaganda website You gotta wonder who leaked?

    Btw, following the World Bank, Russia is practically bound to reach Greece’s GDP per cap in 2014. Moscow is most likely the richest city in former communist Europe already, and its population is greater than many countries’.

    • Shouldn’t it be possible to approximately calculate the new figures anyway? That they still differed from the WB’s sooner suggests that was the case, as opposed to leaks. Plus nobody pays much attention to GDP (PPP) anyway.

      I agree on Moscow. An acquaintance who got a managerial job there recently has a salary entirely in line what he would get for an equivalent position in the US. I suspect this has much to do with its relative success.

      • Chrisius Maximus says:

        I say thee nay. This may be true for white-collar jobs (though I’m pretty sure it isn’t for most), but a supermarket checkout clerk in Moscow earns c. 27000 RUR. I assume this is for a full-time job.

        • Not surprised by either either. The assertions that Moscow managers have First World type salaries while workers have Second World type salaries are not mutually exclusive… and can in fact be demonstrated in graph form

  4. Tory Torrison says:

    “[O]ne could credibly make the argument that a middle-income economy that still has much room for productivity increases, like Russia, should be growing considering faster. But while that is true enough, it should nonetheless be pointed out that to the extent that Russia is in stagnation – so is the entire world, bar China.ussia’s growth mirrors the rest of the world,”

    Agreed. The first sentence here is important, though. Russia does need to make some changes, so that it might grow faster.

    • kokoshmel says:

      Or world? Is it possible to change for the peripheral part of a whole without transformation on integral level?

  5. One possibility is tight money. What are inflation and nominal GDP doing in Russia relative to trend? Has the ruble price of oil fallen? They might only need to print some money and get nominal demand flowing again. Tight money is behind much of the developed world’s problems (see two years ago vs today, pre QEIII US labor market vs today). Also, I would not consider Czech, Hungary or Poland to be terribly macroeconomically similar to Russia. Real GDP per head is about 80% higher in these economies, so if anything Russia should be converging to their level of development.Point taken though.

  6. it says “© Anatoly Karlin 2012” below. its 2013

    AK: Thanks for lending me your eagle eye. Will fix.

  7. Dear Anatoly,

    Apologies for coming late to this discussion but I have been busy on lots of other things and have been coasting a little in my blogging.

    Anyway you know my views. The government some time ago made clear that once the period of rapid extensive growth based on surging exports had exhausted itself the way forward for the economy was by increasing private investment within the domestic economy. The government’s entire policy since Putin’s return to the Presidency has been to sort out Russia’s investment climate in order to make possible this private investment. In order to achieve this first and foremost the government needs to reduce inflation which since the Soviet collapse has been high. High inflation deters saving, which is necessary for investment, and long term credit growth to private business, which is the main form of investment in a market economy.

    The government and the Central Bank have been pursuing this policy with single minded determination and consistency. The result is that interest rates and monetary policy generally as well as fiscal policy (through imposition of the budget rule) have been extraordinarily tight. Growth as a result has fallen, which in the circumstances is not only unavoidable but is actually intentional. The policy is working. Inflation is now coming down. It has recently fallen from an annualised rate of 7.4% to 6.9%. All other things being equal I am confident it will be around 6% by year’s end and with policy as tight as it currently is (and remember the weight of interest rates grows as inflation falls if base rates remain unchanged) I expect to see inflation fall below 5% before long.

    Meanwhile exactly as the government wishes deposit growth continues to increase rapidly. Again with inflation falling the true value of deposits grows faster than their rate of nominal increase.

    This policy has been explained again and again by members of the government and by the Central Bank and there is no excuse for ignoring these explanations and what they mean as western commentators do. It has been explained by Putin himself, by Ignatiev the Chairman of the Central Bank, by Nabiullina who is about to replace Ignatiev at the Central Bank, by Siluanov at the Finance Ministry and by Ulyukayev who was the Deputy head of the Central Bank and who has now been appointed Economics Minister. Over the course of his meeting with Putin following his appointment Ulyukayev again spoke of the priority of increasing private investment in the economy. This was again the theme of a major meeting on economic questions chaired by Putin and held a few days ago in the Kremlin. Ulyukayev, Siluanov, Ignatiev, Belousov and Nabiullina all attended. The meeting specifically addressed the historic reluctance of Russian banks to lend to small and medium sized businesses except at extortionate rates of interest (as high as 20%). This is a direct result of an economy where very high inflationary expectations have become embedded. The meeting discussed ways to increase credit lending to small and medium sized businesses, the key again being to reduce not only inflation but long term inflationary expectations.

    It is this lack of bank lending to businesses growth caused by high inflationary expectations embedded in the economy that is now holding the economy back. With inflation in long term decline and deposit growth accelerating the point will soon come when it no longer makes rational sense for Russian banks. When that happens bank lending to businesses will accelerate and with it economic growth. The main driver of economic growth will however be private investment giving growth a very different character from that of the pre 2008 period.

    There is therefore NO justification in referring to the condition of Russia’s economy as “stagnation”. One must not fall into the trap of growth fetishism. What matters is not whether Russia now achieves growth in any particular year but the quality of the growth it achieves and whether that growth is sustainable. There is no contradiction between saying that an economy is improving and growing stronger even if growth for a time falls and that is exactly the situation of Russia’s economy now. The proper measure of the success or failure of Russian economy policy at the moment is not the percentage rate of annual growth but the extent of inflation decline. With inflation clearly declining policy is successful and one can say that so far from the economy stagnating the economy is improving and strengthening.

    As for the rest of the world, obviously if the world economy was growing at the rate it was before 2008 then Russia’s growth would be higher. However coming back to the question of growth fetishism, the reason the world economy is not growing at such a fast rate is precisely because its previous 2008 growth being based on debt was unsustainable (something which incidentally the neo Keynesians like Krugman refuse to accept). Western economies pre 2008 grew rapidly but in ways that made worse and weaker not better and stronger. That is of course is why there was a crisis in 2008.

    It only becomes appropriate to talk of stagnation in an economy when the potential for growth has become exhausted except through unorthodox methods that make the underlying problems of the economy worse. That was the situation of the Soviet economy in around 1980. That is the situation in the leading economies of the west today where such growth as there has been since 2008 has been entirely due to debt fuelled government reflation and unorthodox monetary experiments such as quantitative easing, which however are compounding the underlying problems that caused the 2008 crisis in the first place. Russia is unique amongst major economies in that it is not following this path. It is not engaging in stimulus, it is not running a big budget deficit, it is not engaging in artificial monetary expansion through quantitative easing and it has increased not reduced its interest rates. The result is that in contrast to the leading western economies Russia has the lowest level of government and household debt of any major economy (its level of household debt being the lowest bar those of Macedonia and Colombia). With such low debt levels after a sustained period of growth in real wages it is a certainty that when interest rates fall and credit growth increases as inflation falls growth will accelerate. Since it will be based on private investment and strong domestic demand it will do so in a sustainable way.

    Lastly I would just make three more points:

    1. I notice that Guriev a few weeks ago made that point that unlike other Stock Markets the Russian Stock Market has not recovered fully the losses it suffered in 2008. That is exactly what one would expect. What has caused prices to boom on western Stock Markets has been precisely the enormous liquidity caused by the quantitative easing engaged in by western Central Banks. This became very clear when western Stock Markets briefly crashed following the merest hint from the US Federal Reserve Board that quantitative easing might be coming to an end. In contrast to western Stock Markets the Russian Stock Market has not been artificially supported in the same way. The result was that following the statements from the US Federal Reserve Board the Russian Stock Market registered fewer falls than did Stock Markets elsewhere. What Guriev therefore saw as evidence of Russia’s economic failure is on the contrary proof of the prudent management of its economy and of the Russian economy’s underlying strength.

    2. I had a meeting earlier today with a friend of mine from Brazil who is a civil engineer there. We discussed the state of the Brazilian economy. Brazil to some extent like Russia benefitted pre 2008 from the commodities boom. Like Russia Brazil has a history of high inflation including hyper inflation. As in Russia the Central Bank in Brazil tried to make reducing inflation its priority. As in Russia the policy had some success with inflation falling to just above 4% last year, Unlike Russia the Brazilian government is weak and has no conception of long term planning. Instead of continuing to bear down on inflation at the very point when the policy seemed to be achieving success it abandoned it. Instead it panicked as growth fell and forced the Central Bank to cut interest rates prematurely. At the same time it tried to stimulate the economy with a massive reflationary package last summer.

    The result was not more growth in the Brazilian economy. On the contrary growth has continued to fall. What happened instead was a renewed surge in inflation probably by more than the headline figure. Inflation puts heavy on household budgets and this was surely the underlying cause of the protests in Brazil of a few weeks ago.

    3. Putin in a recent interview made a perfectly valid point which never occurred to me when he said that western critics of Russia’s supposed energy dependence never mention the extent to which growth in their own economies has become dependent on straightforward money printing. I don’t personally go along with the claim that Russia’s economy is actually “energy dependent” (a big discussion for another day) but surely in relation to western dependence on money printing Putin is making a valid point.

    • The policy is working. Inflation is now coming down.

      Инфляция снизилась, как и ожидалась, из-за действия немонетарных факторов (ослабления влияния крутого повышения акцизов на алкоголь и сигареты в начале года, и хороший урожай, обещающий очередную продовольственную дефляцию в мире, тем более на фоне ожидаемого падения спроса со стороны одного из основных импортеров продовольствия – Египте). Базовая инфляция, очищенная от влияния регулируемых тарифов и акцизов, колеблется вокруг уровня 5.7% год., не обнаруживая какой-либо выраженной тенденции – ни к росту, ни к снижению.

      • По последним данным статистики, пик многомесячного роста инфляции, мучившего российскую экономику в конце прошлого – начале этого года, был пройден где-то в феврале. В марте инфляция снизилась в годовом выражении, а по итогам года она может упасть до 5%.

        8 апреля. FINMARKET.RU – Мартовские данные по инфляции преподнесли приятный сюрприз: явно заметен тренд на замедление роста цен. В годовом выражении инфляция даже сократилась.

        Владимир Осаковский из Bank of America Merrill Lynch уверен, что к концу году инфляция замедлится аж до 5%. А ЦБ, получив такие данные, уже в мае сможет начать цикл снижения ставок.

        You pays your money and you takes your choice!

  8. G Singh says:

    To Anatoly,
    Thanks for a brief but crisp note on the current status of Russian economy.
    I agree with the broad message. Would like to also point out the following:
    (1) the elites across the world have become something like ‘GDP-maniac’. Don’t know if the human civilization got a alien gene sometime around 1750 AD (with the advent of industrial revolution’) that made the human beings so GDP-oriented ! I get a feeling while reading the newspapers, magazines and blogs that human society is here on the earth ONLY to serve the GDP growth (forgetting that GDP is just an indicator of human economic activities).
    (2) looking into recent Chinese economy, it can be easily noted that GDP growth based on ‘export market’ will not continue for decades. The sooner China manages to bring in the ‘internal consumption’ factor to drive GDP growth more vigorously, the better it is. And banking on both, China will continue to outshine all other countries on GDP growth rate at least till 2030 (if some unforeseen IPE factors don’t jeopardize the situation).
    (3) with a decent GDP and per capita income, as well as minimum unemployment Russian economy has achieved quite stability. Russian government should actively work towards relative decline of Energy export component of the economy and relative increase towards manufacturing for internal consumption and exports. There is no necessity of so-called ‘breath-taking speed of economic growth’ which the western media eulogize so much across the world.

  9. Well apparently even China is experiencing a slow-down:

    Their rates of growth are still great by global standards but definitely slowing down compared to what the Chinese have been used to.

  10. Melanie Thornbaum says:

    Thanks for this article. One of the interesting things to me is how much more resilient the Russian economy is due to the recent diversification among different sectors. I am particularly interested in the stories of some of the leading businessmen and the avenues they have pursued, and how those business ventures have improved Russia’s economy. Russia is far from being a “one-industry economy” and there are several leaders who have extremely diverse business interests. A few that come to mind are Alisher Usmanov, Iskander Makhmudov, and Mikhail Prokhorov.