Russia's Economic Performance Is Actually Very Similar To Other East European Countries'

Jan 20 2014, 8:46am CST | by

Russia's Economic Performance Is Actually Very Similar To Other East European Countries'

Ever since it was lumped in with the BRICs, people have judged the performance of Russia’s economy primarily in comparison to India, Brazil, and China. While Russia does not necessarily come out looking bad when compared to Brazil,  if you look only at headline GDP growth numbers then it is clearly lagging pretty far behind India, China, and several other of the more dynamic emerging markets. Quite a lot of people never thought Russia belonged in the BRICs in the first place, and the calls for removing it from the club grew ever louder as its 2013 GDP number were repeatedly revised downward to a measly 1.4%.

While I think the BRICs are an interesting concept, and while Jim O’Neill, the person who coined the term, accurately predicted a strong shift in economic gravity away from the developed world, the simple fact is that Brazil, Russia, India, and China are extremely different countries with extremely different cultures, politics, economics, and demographics. Apart from being large, they just don’t have very much in common.

I’ve long thought that it makes far more sense to compare Russia to the countries with which it shares the myriad aftereffects of state socialism. Russia and the countries of Central and Eastern Europe are, of course, not identical. But in trying to build market structures on the wreckage of the command economy, Russia and other post-Communist countries have shared many of the same economic, social, and political challenges. They inherited economies that were way too focused on heavy industry and that had extremely under-developed service sectors. Manufacturing both employed way too large a percentage of the workforce and was extraordinarily inefficient. Banking systems were practically non-existent, and the management of state finances was chaotic (at best). Due in large part to uncertainty over the new “rules of the game,” corruption was pervasive and on a scale rarely seen in other periods of history. This was a specific set of challenges that few countries outside of Eastern Europe had to face.

And so while Russia looks like a sclerotic failure when you compare it to China or India, it looks a lot better when you compare it to Poland or Romania:

This won’t necessarily be true in the future: it’s entirely possible that, five years from now, Russia will lag behind other parts of Central and Eastern Europe that have made a more concerted effort at economic reform. But at the moment Russia is simply not lagging behind the countries to which it is most similar. It’s performance is very much in line with the region.

Russia’s economy clearly has a lot of problems, with persistently high capital flight at the top of the list and corruption not far behind. But I still think it is noteworthy that virtually every country in the region has gone through a period of protracted economic weakness over the past several years. Some of Russia’s slowdown is domestic in nature, but when a decelerating Russia is still growing more quickly than traditionally strong performers like Poland and Slovakia, it strongly suggests that there is something that is negatively impacting the entire region’s economy.

Whatever that “something” is, whether it’s excessively tight money from the ECB or the initial impact of the demographic shock of the early 1990′s, it cannot be solved by any one country acting alone. Which is to say that even if the Russian authorities suddenly get serious about economic reform, it probably won’t have much of a short-term impact.

Follow me on Twitter @MarkAdomanis or on Facebook

Source: Forbes Business


Don't miss ...


<a href="/latest_stories/all/all/30" rel="author">Forbes</a>
Forbes is among the most trusted resources for the world's business and investment leaders, providing them the uncompromising commentary, concise analysis, relevant tools and real-time reporting they need to succeed at work, profit from investing and have fun with the rewards of winning.


blog comments powered by Disqus

Latest stories

Mummy wearing jewellery unearthed in Egypt
London, Nov 23 (IANS) Spanish archaeologists have discovered about 4,000 years old female mummy wearing rare jewellery in Egypt.
Exercise and fasting could boost brain's functions
Washington, Nov 23 (IANS) Exercise along with occasional fasting is good for boosting the brain's neurons, shows a new research.
One infant dies in Pakistan hospital
Islamabad, Nov 23 (IANS) One more infant died due to lack of oxygen in an incubator and negligence of the hospital administration in Pakistan, bringing the number of such deaths to 19 in the past five days.
American whiskey faces challenge in whisky-gulping India
Washington, Nov 23 (IANS) For the most part Indians love things American, but when it comes to their tipple, the world's largest whisky drinkers usually go for Scotch or their very own home-made brands.

Latest from the Network

Boko Haram kills 48 Nigerian fishermen
Abuja, Nov 23 (IANS) Members of Nigeria's armed terrorist group Boko Haram have killed 48 people in an attack on fish sellers near the border with Chad, a media report said Sunday. The attack took place Thursday, but...
Read more on Politics Balla
45 killed in Afghanistan suicide attack
Kabul, Nov 23 (IANS) At least 45 people were killed and 60 wounded Sunday in a suicide bomb attack at a volleyball ground in Afghanistan's Paktika province, officials said. "Afghan President Mohammad Ashraf Ghani...
Read more on Politics Balla
Switzerland win Davis Cup
Lille (France), Nov 23 (IANS) Switzerland defeated France 3-1 to win the 2014 Davis Cup final at the indoor clay courts of the Stade Pierre Mauroy here Sunday. It is Switzerland's first title at the prestigious event...
Read more on Sport Balla
Iggy Pop tries to twerk
Iggy Pop enjoys twerking around his house. The 67-year-old musician has said he was ''proud'' when Debbie Harry made comments earlier this year saying he had been twerking for his whole life. In an interview with The...
Read more on Celebrity Balla
Olly Murs still gets starstruck
Olly Murs still gets starstruck. The 'Wrapped Up' singer has met his fair share of celebrities since appearing on 'The X Factor' in 2009, but confessed he still feels jittery when he meets people he really admires such...
Read more on Celebrity Balla
John Mayer helped Katherine Heigl to get husband to commit
Katherine Heigl used John Mayer to convince her husband to commit to her. The 'State of Affairs' star - who has been married to Josh Kelley since December 2009 - has admitted that she threatened her now-husband to...
Read more on Celebrity Balla
Baby boy for Kourtney Kardashian?
Kourtney Kardashian is believed to be having a baby boy. The 'Keeping Up With The Kardashians' star - who is currently pregnant with her third child by Scott Disick - was reportedly spotted stocking up on blue outfits...
Read more on Celebrity Balla
Mila Kunis: Jupiter Ascending was like boot camp
Mila Kunis and Channing Tatum ''got in trouble'' for losing too much weight filming 'Jupiter Ascending'. The 31-year-old actress - who has two-month-old daughter Wyatt with fiancé Ashton Kutcher - admits the futuristic...
Read more on Movie Balla
Force India finish sixth in 2014
Abu Dhabi, Nov 23 (IANS) Formula 1 team Force India ended their 2014 season in sixth position in the constructors' championship as its drivers Sergio Perez and Nico Hulkenberg brought home 28 points from the season-...
Read more on Sport Balla
Hamilton seals F1 drivers' title with Abu Dhabi win
Abu Dhabi, Nov 23 (IANS) British racing driver Lewis Hamilton clinched his second Formula 1 drivers' title as he comprehensively won the season-ending Abu Dhabi Grand Prix at the 5.5 km Yas Marina Circuit here Sunday...
Read more on Sport Balla