The Russian Economy is Collapsing
In 2008, nearly $130 billion flew out of Russia, erasing the modicum of inflows registered in 2006 and 2007. For its size, Russia as an investment destination pales in comparison to South Korea. Total equity portfolio inflow into Russia in 2009 was just $3.4 billion, according to World Bank data, making it the lowest of the big emerging markets by far. India, China and Brazil all registered inflows over $20 billion. A recent opinion poll by the Levada Centre shows that 22% of Russia’s adult population would like to leave the country for good, up from 7% in 2007. It is the highest figure since the collapse of the Soviet Union, when only 18% said they wanted to get out. Over 50% of Russian entrepreneurs said that they wanted leave the country. “From a macro perspective, I don’t want to be in Russia,” says Justin Leverenz, emerging markets portfolio manager at Oppenheimer Funds in New York. “From an investor’s point of view, Russian politics are far beyond what I’m able to analyze.”
Believe it or not, those words appear in a recent article in which the author is trying to put a positive spin on Russia. Can you imagine what Russia’s economic critics are saying these days?
Inflation Devastates Putin’s Russia
By far the most important economic story where Vladimir Putin’s Russia is concerned remains inflation. Raging out of control like wildfire, consumer price inflation is hollowing out the Russian economy even faster than the virulent corruption which Putin has likewise failed to control.
And the most important inflation story is how the government is hiding the truth about it.
The Coming Russian Depression
Even by Russian standards, the economic news last week was exceedingly grim.
A new report released by Standard & Poors revealed that as Russia’s population crashes to near 115 million by 2050, a loss of well over 15% from today’s level, and as it ages while younger workers disappear, the country can expect national debt to soar to stratospheric levels nearly six times what Russia produces in value in a given year. Russia will produce less and less value with fewer and fewer productive workers (Russian workers are already among the world’s least productive and most corrupt), yet it will be called upon to pay out more and more to unproductive, aging workers.
S&P’s conclusion was stark indeed: “By 2035, we expect that Russia’s fiscal indicators will have weakened such that they would be more in line with sovereigns currently rated in the speculative-grade category, because, in our view, the projected improvement in GDP per capita would not be able to offset the potential fiscal deterioration.”