Difference between revisions of "Essay: Why I am not bullish on Russia's future"

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'''21.''' Russia's long-term economic forecast.  
 
'''21.''' Russia's long-term economic forecast.  
  
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On March 25, 2024, as far as Russia's [[gross national product]] growth, the Bank of Finland Institute For Emerging Economies indicated with a note of caution regarding their forecast due to Russia publishing less publically available economic data during the war in Ukraine: "Russian economic growth will decelerate this year. High growth of the second half of 2023 is still sufficient to boost on-year growth this year to around 2 %, even if quarterly growth were to cease altogether in 2024. In the absence of a surprising event, the Russian economy in 2025 and 2026 should grow at around 1 % a year, close to its long-term potential growth rate."<ref>[BOFIT Forecast for Russia 2024–2026], Bank of Finland Institute For Emerging Economies, 25 March 2024</ref>
+
On March 25, 2024, the Bank of Finland Institute For Emerging Economies indicated with a note of caution regarding their forecast due to Russia publishing less publically available economic data during the war in Ukraine: "Russian economic growth will decelerate this year. High growth of the second half of 2023 is still sufficient to boost on-year growth this year to around 2 %, even if quarterly growth were to cease altogether in 2024. In the absence of a surprising event, the Russian economy in 2025 and 2026 should grow at around 1 % a year, close to its long-term potential growth rate."<ref>[BOFIT Forecast for Russia 2024–2026], Bank of Finland Institute For Emerging Economies, 25 March 2024</ref>
  
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According to Forbes magazine: "A [[Goldilocks economy]] is an economy that is experiencing “just right” levels of growth. It’s not too hot to suffer runaway [[inflation]], but not so cold that unemployment spikes... Goldilocks economies are believed to have GDP growth around 2-3% annually.<ref>[https://www.forbes.com/sites/qai/2022/09/09/not-too-hot-not-too-cold-are-we-in-a-goldilocks-economy/?sh=73a6e4af5fae Not Too Hot, Not Too Cold: Are We In A Goldilocks Economy?], Forbes, 2022</ref>
+
According to Forbes magazine: "A [[Goldilocks economy]] is an economy that is experiencing “just right” levels of growth. It’s not too hot to suffer runaway [[inflation]], but not so cold that unemployment spikes... Goldilocks economies are believed to have [[Gross domestic product|GDP]] growth around 2-3% annually.<ref>[https://www.forbes.com/sites/qai/2022/09/09/not-too-hot-not-too-cold-are-we-in-a-goldilocks-economy/?sh=73a6e4af5fae Not Too Hot, Not Too Cold: Are We In A Goldilocks Economy?], Forbes, 2022</ref>
  
 
There are other notable factors mentioned above which could make the above long-term forecast worse such as China's financial difficulties causing it to buy less Russian oil in the future and Russia being less able to produce oil post 2035 (See: [[Essay: Russia's economy and gas and oil profits will be BADLY damaged when China's economy declines|Russia's economy and gas and oil profits will be BADLY damaged when China's economy declines]] and [[Essay: Russian oil: Lower future production/profits due to future higher extraction costs and other inefficiencies|Russian oil: Lower future production/profits due to future higher extraction costs and other inefficiencies]]).  
 
There are other notable factors mentioned above which could make the above long-term forecast worse such as China's financial difficulties causing it to buy less Russian oil in the future and Russia being less able to produce oil post 2035 (See: [[Essay: Russia's economy and gas and oil profits will be BADLY damaged when China's economy declines|Russia's economy and gas and oil profits will be BADLY damaged when China's economy declines]] and [[Essay: Russian oil: Lower future production/profits due to future higher extraction costs and other inefficiencies|Russian oil: Lower future production/profits due to future higher extraction costs and other inefficiencies]]).  

Revision as of 06:44, April 28, 2024

The flag of Russia

Russia (formally the Russian Federation, in Russian: Российская Федерация, Rossiyskaya Federatsiya), is the largest country by area (17,075,200 square kilometers) and shares borders with more countries than any other state in the world giving it unique security concerns. Russia has the ninth largest population spanning from Eastern Europe to Northern Asia. Its capital is Moscow, and it is a federation of constituent governments.

Russia's strengths

Cathedral of Christ the Saviour in Moscow, Russia

Russia has:

1. It has national unity with high nationalism.

However, there is social science data that indicates that Russians overestimate their influence on world history.[1] See: We Made History: Citizens of 35 Countries Overestimate Their Role in World History

"Russians, for example, estimated that their country was responsible for 61% of world history." - Source: We Made History: Citizens of 35 Countries Overestimate Their We Made History: Citizens of 35 Countries Overestimate Their Nation’s Role in World History, Journal of Applied Research in Memory and Cognition, Volume 7, Issue 4, December 2018, Pages 521-528

2. A lot of oil and gas. However, future oil extraction is expected to lesson (See: Russian oil: Lower future production/profits due to future higher extraction costs and other inefficiencies). In addition, in August of 2023, the United States was outproducing Russia in oil production (See: The USA is outproducing Russia and Saudi Arabia in oil production. The best is yet to come).

"Russian President Vladimir Putin is laying claim to 1.2 million square kilometers in the Arctic. His main objectives appear to be the colonization of the Arctic and of the North Pole. It’s a project more than 20 years in the making. This area, which remains virtually unexploited, is one of the last El Dorados on the planet. The subsoil is full of oil, gas, rare earths and precious minerals like gold, uranium, and copper. With... the melting of the ocean’s ice, these riches are now more accessible, fueling the greed of major Western powers. But in this conquest of the Arctic, Russia already has a head start. For years, the country has been equipped with gigantic nuclear-powered icebreakers, which have been used to help navigate the icy waters surrounding the North Pole. In addition, Vladimir Putin has invested in extraordinary industrial projects. One such project is an enormous gas processing plant anchored in the permafrost; another is the construction of an incredible floating nuclear power plant intended to supply energy to Pevek, a small, isolated port north of the polar circle. These are but a few examples of the Russian leader’s flagship projects, in this new conquest of the Arctic." - Putin's advances in the Arctic | DW Documentary

3. Produces a lot of wheat and agricultural products

4. Talented people in the Central Bank of Russia who have kept national debt low and greatly mitigated the effect of Western sanctions.

5. A competent diplomatic corps that is increasing Russia's influence in the Global South.[2]

6. Strong military defense capability. Russia has: strong industrial capacity in terms of producing military hardware, some good defense systems and the largest supply of intercontinental nuclear missiles.[3]

7. Russia did pass some laws forbidding the promoting of homosexuality.[4][5] See: How anti-homosexuality is Russia? Are there countries that are more anti-homosexuality and more family-friendly?

However, according to the website Russia Today, being gay is not a crime in Russia and homosexuality was decriminalized in 1993.[6]

According to Statista.com, as far as homosexuality/LGBTQ, 40% of Russians are emotionally ambivalent; friendly; interested, or indicate that it is hard to say how they feel/think about homosexuality (See: Russian Attitudes Toward LGBT Persons in 2021 - Statista.com). If you look at man in the street interviews in Russia, there are a variety of people's views on homosexuality (See: What RUSSIANS think about LGBT? and What Russians think about LGBT? and Do you hate LGBT? 100 Russians). On the other hand, in 2016, openly homosexual men holding hands and walking through Russia in public laws do get pushback from some people (See: This is what it's like to be gay in Russia, The Independent, 2016)

8. Some positive things in pre-Soviet Russian civilization that continue to this day (chess, ballet, etc.).

Russia's weaknesses

Vladimir Putin

See also: Vladimir Putin is a corrupt kleptocrat and an authoritarian

1. Lack of good governance. Lots of corruption and an authoritarian government with the Kremlin surrounded by big walls. Russia has a long history of corruption. Vladimir Putin's corruption is not some surprising fact of history (See: Corruption in Russia: A Historical Perspective). See: Vladimir Putin is a corrupt kleptocrat and an authoritarian and Essay: Is Vladimir Putin a beacon of family values or a complete failure in this matter?

Research indicates that in the long-term, non-authoritarian countries are more likely to experience greater economic growth. See: Time Under Authoritarian Rule and Economic Growth, CORI Working Paper No. 2007-02

In 2020, the prominent and highly respected Russian scholar Richard Sakwa, while noting some of Putin's achievements, said one of the downsides of Putin's regime was a loss of dynamism in Russian society along with stagnation setting in as far as Russia.[7][8]

2. There are some Russians who hold some traditional Russian Orthodox ideas (However, attendance at Russian Orthodox churches appears to be very low. See: Although attendance at Russian Orthodox churches is low). There is a large portion who do not hold traditional values and Russia has the 3rd highest divorce rate in the world (See: Russia has the 3rd highest rate of divorce in the world).

In several notable and important ways, Russia is not a conservative country (See: Russia is not a conservative country).

The 2021 LegitRuss Survey indicates that Russians aren't very conservative as indicated by:

“ To understand the extent to which Russians actually share conservative values, the best initial strategy is to ask them directly, and also to ask multiple questions to make sure our conclusions are not skewed by any particular wording. LegitRuss principal investigators Kolstø and Blakkisrud have already taken us part of the way, reporting that Russians are not, on the whole, actually very “traditional” when it comes to religiosity. In fact, they find that believers differ very little from non-believers on issues such as abortion, premarital sex, and divorce, with society overall being largely split, if not leaning toward the non-conservative position. In addition, just over half, 56 percent, report belonging to a religious denomination at all, and of these, only 81 percent belong to the Russian Orthodox Church (ROC), and 14 percent are Muslim. Only a decided minority of 26 percent think that the ROC should have a say in politics, with 71 percent opposing this. That said, 40 percent do confess to agreeing that it is God’s plan for Russia to be successful—large share of the population but still not a majority.[9] ”

3. Russia's fertility rate of 1.58 births per woman is one of the lowest fertility rates in the world.[10] It's fertility rate is below the replacement rate of 2.1 births per woman.

Shortly before the pandemic broke out in 2020 Vladimir Putin stated: "Russia's destiny and its historical prospects depend on one thing: how many of us there are and how many of us there will be."[11] See: Russia is dying out. The war in Ukraine is making Russia's demographic crisis even worse

Demographers estimate Russia will fall from being the 9th most populous country in the world to being the 17th by 2050.[10] And estimates indicate that Russia's population will drop from 2014's 142 million to 128 million by 2050.[10]

Russia will go out swinging (Ukraine, etc.), but its age demographics (which is among the worst in the world in terms of an aging population) and other problems will cause a cultural collapse in Russia in the 21st century (See: Peter Zeihan's demography series). See: Demographics of Russia and Aging of Russia

Russian emigration from Russia is significant:

Russia, fertility rate and demographics videos:

The war in Ukraine is making Russia's demographic crisis worse (See: Russia is dying out. The war in Ukraine is making Russia's demographic crisis even worse).

Other articles related to the war in Ukraine is making Russia's demographic crisis worse:

During his annual phone-in with the public in 2019, President Vladimir Putin described low productivity as “one of the most acute and important” problems facing Russia.[12]

4. According to the Moscow Times: "During his annual phone-in with the public in June this year, President Vladimir Putin described low productivity as “one of the most acute and important” problems facing Russia."[13] See: Low labor productivity is one of the most acute and important problems facing Russia

In addition, Russia's labor quality is getting worse and its future prospects of improving are poor (See: Russia's economy is that of a shrinking, aging, and poorly qualified population).

5. Russia has a significant labor shortage (See: Russia's labor shortage).

The Center for European Policy Analysis reported on March 9, 2024: "Towards the end of last year, experts from the Institute of Economics of the Russian Academy of Sciences estimated that Russia faced a shortfall of nearly 5 million workers in 2023, which is already impeding economic growth. The total workforce is a little under 74 million."[14]

6. Compared to many countries, Russia is uncompetitive when it comes to innovation.[15][16] See:Russia is far behind the USA and China as far as innovation and Russia's ability to innovate is likely going to get worse

In 2023, Russia was ranked 51st in the world as far as the Global Innovation Index.[17] According the Global Innovation Index: "In 2023, global innovation index for Russian Federation was 33.31 index. Global innovation index of Russian Federation fell gradually from 39.14 index in 2014 to 33.31 index in 2023." (A score of 0 is the weakest a country can obtain).[18]

7. Russia's poor business climate. See: Russia's unfriendly business environment

The Kennan Institute indicates concerning Russia's unfriendly business environment:

“ Albats suggested that democracy should be viewed as a commodity that needs to have buyers. In order for democracy to develop in Russia, there must be a class of "consumers of democratic politics," consisting primarily of people involved in small and medium businesses. Unfortunately, Albats warned, this constituency is in decline in Russia. The number of people employed in small and medium business has declined from a peak of 8.9 million in 1995 to only 6.3 million in 2001. At the same time, the proportion of bureaucrats relative to the population has been increasing: In the last days of the Soviet Union, there was one bureaucrat for every 75.6 citizens, and in Russia today there is one bureaucrat for every 49.6 citizens.

Thriving in a system rife with corruption and little accountability, Soviet-trained bureaucrats have stifled the growth of small businesses in Russia, according to Albats. She noted that the majority of regulations existing in Russia today were issued not by the Duma or the President, but by various state agencies—between 1991 and 2001, Russian federal ministries imposed 1474 regulations on business, compared with 156 passed by the legislature. Albats contended that bureaucrats find it easier to control several large businesses than many small businesses, and have set up a regulatory framework to reflect that preference.[19]

”

Many small businesses work in their businesses and Russian small and medium business people are burdened with a lot of pointless regulations to deal with.

See also: Vladimir Putin is a corrupt kleptocrat and an authoritarian

8. Russia's economy will enter a long-term decline and the war in Ukraine is having a negative effect on its economy

The Russia-Ukraine War is hurting the Russian economy (See also: The war in Ukraine and Western sanctions will significantly hurt the Russian economy).

Russia's inflation problem:

Russia's declining rubble problem:

Negative impact of the war in Ukraine on Russia's economy:

You can't spread a AK-12 assault rifle on bread! Or put it in a cake! This war in Ukraine is going to be a pyrrhic victory for Putin/Russia - especially given its subreplacement fertility rate and the fact that it has one of the worst demographics in the world. See: Russia is dying out. The war in Ukraine is making Russia's demographic crisis even worse

Russia's share of the world's economy is expected to shrink by 2028:

The article Is Russia the World’s 5th Largest Economy in GDP, PPP? indicates:

“ But what if we were to look ahead? How would Russia fare in the ranking of Europe’s and the world’s largest economies in the future? Again, we consulted the IMF, whose estimates go to 2028. These estimates show that in 2028 Russia’s share in the world’s GDP, PPP, in constant dollars will shrink, making it seventh among the countries with the largest shares in the world’s GDP. The IMF predicts that Russia’s share in the world’s GDP will decline from 2.92% in 2022 to 2.58% in 2028 (see Table 4), a decrease of 11.64%.[20] ”
Chart of the currency exchange between the Russian ruble to dollars from December 5, 2003 to August 26, 2023

9. Russia's economy is not highly diversified. It is too dependent on oil and gas.[21] See: Russia's economy and gas and oil profits will be BADLY damaged when China's economy declines and The USA is outproducing Russia and Saudi Arabia in oil production. The best is yet to come

Newsweek's November 23, 2023 article Russian Economy About to 'Hit the Ice,' Putin Ally Warns states:

“ Russia's economy is about to "hit the ice", billionaire businessman Oleg Deripaska, described as President Vladimir Putin's "favorite oligarch", has warned.

The businessman, whose fortune Forbes estimates at $2.4 billion, issued the warning in a post on his Telegram channel, saying that there is a general drop in commodity prices, including those that Russia exports, and that this could negatively impact the country's economy...

Deripaska warned that next year's budget could be short 10–12 trillion rubles ($112.8 to $135.36 billion) due to the current drop in commodity prices. This could be caused by a general decline in global prices for raw materials, "suppressed economic growth," and "the tyranny of state capitalism, raising prices for all its products and services, drawing subsidies and subsidies from the budget," the oligarch said.

He said the current situation is a "trap", and it is only possible to get out of this through "serious economic changes, for which, apparently, there is no will yet."

"What the world calls a 'soft landing' continues, prices for all commodities are declining. And we have a record tax collection this year of 46 trillion rubles. Already in the next year the income situation [government revenues] will hit the ice," he added.

The IMF forecasts that the Russian economy will grow by 2.2 percent this year after shrinking by 2.1 percent last year, though it sees GDP growth slowing to 1.1 percent in 2024.[22]

”

Russian oil: Lower future production and lower future profits due to future higher extraction costs and other inefficiencies

See also: Russian oil: Lower future production/profits due to future higher extraction costs and other inefficiencies

In 2023, OilPrice.com reported in an article entitled Analysts Predict 42% Decline In Russian Oil Production By 2035:

“ But Moscow cannot continue defying the odds indefinitely. BP Plc (NYSE: BP) has predicted that the country’s output is likely to take a big hit over the long-term, with production declining 25%-42% by 2035. BP says that Russia's oil output could decrease from 12 million barrels per day in 2019 to 7-9 million bpd in 2035 thanks to the curtailment of new promising projects, limited access to foreign technologies as well as a high rate of reduction in existing operating assets.

In contrast, BP says that OPEC will become even more dominant as the years roll on, with the cartel’s share in global production increasing to 45%-65% by 2050 from just over 30% currently. Bad news for the bulls: BP remains bearish about the long-term prospects for oil, saying demand for oil is likely to plateau over the next 10 years and then decline to 70-80 million bpd by 2050.

That said, Russia might still be able to avoid a sharp decline in production because many of the assets of oil companies that exited the country were abandoned or sold to local management teams who retained critical expertise.[23]

”

For the full article, see: Analysts Predict 42% Decline In Russian Oil Production By 2035, OilPrice.com, 2023

Videos:

Russia crude oil extraction cost March 2005 to December 2018:

For more information, please read: The Golden Age of Russian Oil Nears an End, Stratfor, 2023

"Russia's easily accessible oil reserves have long been the cornerstone of its economy. But these conventional fields are depleting, leading to the need to invest and expand into more untapped sources. This transformation will not be easy or cheap, as various factors have led to a poorly optimized oil sector that's ill-equipped to soften the blow of rising costs... Russia may have little choice but to accept that its glory days of oil dominance and high profit margins are nearing an end." - The Golden Age of Russian Oil Nears an End, Stratfor, 2023

Russia crude oil extraction cost March 2005 to December 2018[24]

Russia's crude oil extraction cost affects how much profit Russia can earn from Russian oil sales. In addition, it can affect the potential amount of Russian oil drilling because if oil is too costly to extract in a given area, the drilling will not occur.

Russia's oil extraction cost are expected to rise in the future. See: The Golden Age of Russian Oil Nears an End, Stratfor, 2023

For more information, please see: Russian oil: Lower future production/profits due to future higher extraction costs and other inefficiencies

Oil and gas are a significant part of the Russian economy. Russia is now selling oil and gas at a lower profit margin to China/India due to sanctions and Europe moving away from Russia oil/gas:

Oil and gas are a significant part of the Russian economy. Russia is now selling oil and gas at a lower profit margin to China/India due to sanctions and Europe moving away from Russia oil/gas. China's economy is having significant problems compared to its past. If China's economy gets worse (And there is some evidence that China's future economy will may worse this decade and beyond), that is going to hurt the Russian economy. See: Essay:Skepticism about China remaining a global power).

"Even the act of diverting supplies to Asia entails a significant reduction in Russian companies’ profit margins. It costs a lot more to transport oil to Asian markets than to Europe, and there is not much spare transport capacity, which pushes up the cost of freight, reducing the profit made by Russian companies, whatever the amount at which the price is capped.

The price cap also enables Asian buyers to obtain big discounts on Russian oil. China and India may not officially be enforcing the cap, but it’s hard to imagine that companies from those countries will not use it to barter the price down. Indeed, this is already happening: some shipments to China due to be loaded onto tankers in January were sold at $5–6 cheaper per barrel than usual."[25]

Oil and gas are a significant part of the Russian economy.

Russia is now selling oil and gas at a lower profit margin to China/India due to sanctions and Europe moving away from Russia oil/gas.[26]

Trump has Putin ‘over a barrel’ with aggressive energy policy, defense of the West, CNBC, 2017

Donald Trump had Vladimir Putin ‘over a barrel’ with his aggressive energy policy.[27]

It is just a matter of time before another Republican president will be elected in the USA.

Unfortunately for Russia, it does not have a well-diversified economy.

Countries with diversified economies are more resilient and stable:

Booz & Company was a global strategy consulting team established in the United States in 1914. The firm was acquired by PwC on April 4, 2014.

Below is the executive summary of their report entitled Resilient, stable, sustainable: The benefits of economic diversification

“ The effects of the recent global economic crisis were allpervasive, and demonstrated that no economy is safe from destabilizing external events. Resource-dependent countries, with their narrow base of economic activity, are particularly vulnerable, but all countries may have vulnerabilities stemming from a lack of diversification in one or more economic dimensions, and they must be more vigilant in managing risks to their economies. Not only must a country’s gross domestic product (GDP) be balanced among sectors, but key elements of its economy must be varied, flexible, and readily applicable to a variety of economic opportunities, and areas of overconcentration must continually be identified and mitigated. Policymakers should work to achieve greater economic diversification, in order to reduce the impact of external events and foster more robust, resilient growth over the long term.

For resource-rich, developing economies, the immediate imperative is to diversify export-oriented sectors, but for the benefit of long-term sustainability, they must also look at the larger picture. A strong institutional and regulatory framework and workforce development initiatives are indispensable to the diversification effort; and proper management of human capital is key, especially in those countries experiencing a “demographic dividend.” Implementing such comprehensive diversification and risk management strategies won’t be easy, but the result—a diverse, stable, and growing economy—is worth the effort.[28]

”

Related articles:

Every year, 500,000 people die due to alcohol in Russia.[29]

10. It's poor state of public health (see: Healthcare in Russia and Understanding Russia’s Healthcare System). Many of its men are alcoholics. Every year, 500,000 people die due to alcohol in Russia.[30] This is likely a cultural legacy of the atheistic Soviet Union. See: Atheism and alcoholism

11. Morale is low in the country compared to many countries and there is much unhappiness (See: Are the Russians as unhappy as they claim they are?).

12. Much of its land is in cold, inhospitable areas (Areas that often lack modern conveniences such as indoor plumbing.[31]).

13. Poor prospects to attract new people. In addition, many wealthy people and young men have fled Russia (See: Peter Zeihan's demography series).

14. Russia is bogged down in a war in Ukraine which is increasingly hurting Rusia's economy (See: Russian war economy is overheating on a powder keg, Reuters, 2023).

15. It is currently a pariah state in the West with many sanctions against it. And many Western corporations pulled out of Russia. Russia may have to resign itself to selling much of its oil/gas in the future at a discount and lower profit margin to countries in the Eastern World such as India and China (I expect the USA to ramp up its oil and gas production in the future via some Republican presidents, but Democrat presidents will cause somewhat of a drag on this process.).

16. State of religion in Russia

In 2022, it was reported that attendance at Russian Orthodox Church services in Russia has dropped to around one percent.[32]

Also, according to a 2019 report "Using data from surveys carried out by the Higher School of Economics in Moscow in 2018, the sociologist Yana Roshchina worked out that while almost 81 percent of adult Russians consider themselves Orthodox, this is often a declaration of identity rather than faith. Just 6 percent of the population and 43 percent of believers go to church several times a month. According to Interior Ministry statistics, 4.3 million people across the country attended Easter services in 2019 – around 100,000 fewer than a year before."[33]

Pew Research reported in 2017: "Relatively few Orthodox or Catholic adults in Central and Eastern Europe say they regularly attend worship services, pray often or consider religion central to their lives. For example, a median of just 10% of Orthodox Christians across the region say they go to church on a weekly basis."[34]

Also, there is the issue of Russia's persecution of Russian Protestants (See: Why Russia's religious persecution of Russian Protestants is not good for Russia).

17. According to US Department of State in 2017,[35] Muslims in Russia numbered 14 million or roughly 10% of the total population. Historically speaking, at 10% of the population, Muslims cause problems in society (See: What Islam Isn't - Dr. Peter Hammond).

18. Russia faces shrinking middle class, rising inequality, study finds":

"Russia's middle class will shrink as social inequality grows over coming years, an economic study conducted by Russian experts suggested, as sanctions against Moscow and limited growth potential scupper development prospects...

Russia's economy proved unexpectedly resilient in the face of tough Western sanctions last year, but a return to pre-conflict levels of prosperity may be far off as more government spending is directed towards the military.

The study's most optimistic scenario sees real incomes exceeding 2021 levels by around 2% in 2030 and poverty dropping below 10% from 11.8% in 2022. In that scenario, the size of the middle class would still drop to 14%-31% by 2030 from current estimates of 20%-50%."

19. Russia is experiencing a large brain drain

20. For a number of reasons, Russia does appear to be stuck in the middle-income trap, so while it may escape the middle-income trap someday, it will not be anytime soon.[36][37][38]

21. Russia's long-term economic forecast.

On March 25, 2024, the Bank of Finland Institute For Emerging Economies indicated with a note of caution regarding their forecast due to Russia publishing less publically available economic data during the war in Ukraine: "Russian economic growth will decelerate this year. High growth of the second half of 2023 is still sufficient to boost on-year growth this year to around 2 %, even if quarterly growth were to cease altogether in 2024. In the absence of a surprising event, the Russian economy in 2025 and 2026 should grow at around 1 % a year, close to its long-term potential growth rate."[39]

According to Forbes magazine: "A Goldilocks economy is an economy that is experiencing “just right” levels of growth. It’s not too hot to suffer runaway inflation, but not so cold that unemployment spikes... Goldilocks economies are believed to have GDP growth around 2-3% annually.[40]

There are other notable factors mentioned above which could make the above long-term forecast worse such as China's financial difficulties causing it to buy less Russian oil in the future and Russia being less able to produce oil post 2035 (See: Russia's economy and gas and oil profits will be BADLY damaged when China's economy declines and Russian oil: Lower future production/profits due to future higher extraction costs and other inefficiencies).

Prior to the war in Ukraine, Russia practiced fiscal discipline and built up a reserve in order to make it more resilient to Western sanctions.[41] However, the war is causing labor shortages, some inflation, and war time economies hurt a country's longer-term economic prospects because the money spent on the military is not spent on education, research and development, other factors which help labor productivity and other items which help long term economic growth.[42][43] In addition, Western sanctions on Western technology hurts the Russian economy, but this a more slow and long-term as far as its effects.[44]

Currently, Russia is under a wartime economy and is running a deficit.[45]

From 2017 until early 2022, Alexandra Prokopenko worked at the Central Bank of Russia and at the Higher School of Economics (HSE) in Moscow. She is a former columnist for Vedomosti.

According to Prokopenko, Russia faces an economic trilemma which involves juggling the three balls of: funding the war in Ukraine, maintaining his populace’s living standards, and safeguarding macroeconomic stability.[46] Prokopenko indicates that after 3 years, the Russians will drop one of these balls and the ball that Russia will most likely pick will be the lowering of his populace's living standards.[47]

On April 28, 2024, The Japan Times reported:

“ President Vladimir Putin of Russia appears on track to institute a rare tax increase on corporations and high earners, a move that reflects both the burgeoning costs of his war in Ukraine and the firm control he has over the Russian elite as he embarks on a fifth term in office.

Financial technocrats in Putin’s government are searching for new ways to fund not just the war but also a broader confrontation with the West that is likely to remain costly for years. Russia is allocating nearly one-third of its overall 2024 budget to national defense spending this year, a huge increase, adding to a deficit that the Kremlin has taken pains to keep in check...

Most Russians pay income tax at a flat rate of 13%, significantly lower than what taxpayers in the United States and Western Europe typically pay. In an interview in March, Putin said he planned to introduce a new progressive tax scale in part to alleviate poverty — a popular message among many Russians who support increasing taxes on the country’s rich, which have historically been low.

A tax that largely spares lower income earners could also help mute discontent over the war among poorer Russians, who are providing much of the manpower for the army and bearing the brunt of the casualties. Putin has signaled that the tax overhaul will include special incentives for certain groups, which could include Russians directly involved in the war effort or families with three or more children.[48]

”

Currently, many high-income people are fleeing Russia:


The places that millionares are leaving in 2023-2024. Russian is 4rth on the list.

Demographic projections of Russia's future population

See also: Demographics of Russia

Map of Russia. Approximately 7% of Russia's land is arable and suitable for agricultural production.

Demographers estimate Russia will fall from being the 9th most populous country in the world to being the 17th by 2050.[10] And estimates indicate that Russia's population will drop from 2014's 142 million to 128 million by 2050.[10]

The Jamestown Foundation's 2022 article Russia’s Demographic Collapse Is Accelerating notes:

“ Aleksey Raksha, an independent Russian demographer and perhaps the closest Russian counterpart to the late US expert Murray Feshbach, provides the most comprehensive discussion of these developments. He relies exclusively on the first results of the latest census, which were released earlier this summer (Vedomosti.ru, April 8), and a broader selection of demographic data that Rosstat, the Russian government’s statistical arm, has now released (Rosstat.gov.ru, August 2022), making it far harder for his words to be dismissed. The situation he outlines is devastating (Svoboda.org, August 9).

During the first five months of 2022, Russia’s population fell by 430,000, which far exceeded the figure for the same period in 2021 and one that points to another decline of more than one million people for 2022 as a whole. The 2021 figure reflects both the relationship of births and deaths among the permanent population and the size of migration flows. Last year, in-migration partially compensated for the greater number of deaths as compared to births, but this year, it has not. Instead, increased out-migration has contributed to the total population decline. The opening of the country to in-migration after the pandemic may lead to a slight improvement in the second half of 2022, but that will not be enough to compensate for the indigenous decline continuing into 2023 and throughout the coming decade (Osnmedia.ru, July 26).[49]

”
Russia's population size.jpg

The journalist Isabelle Khurshudyan's 2020 article In Siberian coal country, signs of Russia’s shrinking population are everywhere. It ‘haunts’ Putin. notes:

“ A United Nations demographic report last year calculated that the “pessimistic” outlook for Russia is that the population will fall to 124.6 million by 2050 and to 83.7 million by 2100.

Raksha, the demographer, expects a bigger drop next year in another potential consequence of the pandemic. One indicator: Registered marriages this year through July were down 23 percent compared with the same period last year, according to Rosstat.

The pandemic made things “unpredictable, and in such situations, people delay birth,” said Raksha, who worked for Rosstat until this summer. Putin’s solution: promising tax breaks for larger families and stipends for those who have kids.[50]

”

Bloomberg News reported on October 18, 2022:

“ Plans by Putin’s government had set the goal of starting to reverse the decline in the population in 2022 before growth should resume in 2030. Yet weeks before the mobilization was announced in September, an internal report drafted for a closed-door meeting showed officials were already concluding those targets were unrealistic.

Citing the consequences of the coronavirus and migration outflows, the report instead proposed a revision that envisaged a decrease of 416,700 people in 2030.

Should military operations continue in the coming months, as expected, Russia may see less than 1.2 million births next year, the lowest in modern history, according to Igor Efremov, a researcher and specialist in demographics at the Gaidar Institute in Moscow.[51]

”

Russia's demographic crisis and its state of public health

Russian demography has long been an existential issue to Vladimir Putin. In 2021, he declared “saving the people of Russia is our top national priority".[52]

See also: Russia's HIV/AIDS epidemic

Adam Gwiazda's article Demographic crisis in Russia states:

“ The state of public health is one of the most extreme aspects of the demographic crisis in Russia. As a result of the AIDS epidemic, alcoholism and the dreadful state of health care, in the years 2005-2015 the mortality rate in Russia was three times higher among men and twice as high among women as in other countries with a similar level of social and economic development. More than half of the deaths of Russians aged 15-54 were caused by alcohol abuse after the collapse of the USSR. It should be noted that even the increase in the income of the Russian population by about 80 per cent in the years 1999-2008 did not result in a decrease in the mortality rate. High Russian mortality is the result not only of “normally” treatable diseases, such as tuberculosis, but also of lifestyle: drinking vodka, smoking cigarettes and AIDS. Every year, 500,000 people die due to alcohol in Russia. This applies to both women and men. The drug problem is also huge, as the prices of drugs are lower than in Western countries.

Russia is also unable to cope with the prevention and treatment of cardiovascular diseases and cancer, which are the main cause of death. The problem is not only the lack of sufficient funds for health care (until mid-2005, about 4.2 per cent of GDP was allocated for this purpose, while in rich European countries it was on average 8-10 per cent of GDP), but also the country’s unfavorable social and economic situation, relatively low position of health and a long life on the Russian list of priorities, poverty, lack of responsibility for one’s own health, and bad habits.[53]

”

Russia's low fertility rate, aging population, projected working population and its potential impact on its economy

Russian woman in a dress.

Russia's population is expected to age significantly over the next few decades.[54]

The World Bank's article Searching for a New Silver Age in Russia: The Drivers and Impacts of Population Aging states:

“ Over the next few decades, Russia’s population is expected to age significantly. Some of this aging will be due to the increasing life expectancy, which is a significant achievement. However, this trend, together with low fertility and the retirement of large numbers of people born in the 1950s are expected to reduce the working-age population by as much as 14 percent over the next 35 years.

A decline in Russia’s working-age population will certainly pose serious social and economic challenges – but it can also offer important opportunities.

Pessimistic forecasts about the impacts of aging often assume that current behavior and institutions will continue unchanged in a future, older society. For example, since the early 1990s, increases in the working-age population have accounted for about one third of the growth in per capita GDP. Over the next few decades, without changes in individual behavior and government policies, a rise in the dependency ratio could reduce growth by 2 percentage points per year.

One important channel is savings, which could plunge if lifecycle-based savings rates remain unchanged as Russia’s population ages. Aging could also substantially increase spending on health care and pensions, leading to protracted deficits that boost today’s debt-to-GDP ratio of 20% of GDP to over 100% by 2050.

A more optimistic view is that individuals and firms will adapt to aging, and that policies can promote and speed up this adaptation process.[55]

”

An excerpt from the abstract for the 2016 journal article Aging in Russia published in the journal The Gerontologist states:

“ Russia has always been at an intersection of Western and Eastern cultures, with its dozens of ethnic groups and different religions. The federal structure of the country also encompasses a variety of differences in socioeconomic status across its regions... Social policy and legislation address the needs of older adults by providing social services, support, and protection. The retirement system in Russia enables adults to retire at relatively young ages—55 and 60 years for women and men, respectively—but also to maintain the option of continuing their professional career or re-establishing a career after a “vocation” period. Though in recent years the government has faced a range of political issues, affecting the country’s economy in general, budget funds for support of aging people have been maintained.[56] ”

Major reasons why Russia is a country in decline

For more information, please see:

2023 poll: Russians Fear the Worst Is Yet to Come, New Polling Indicates

John Joseph Mearsheimer and U.S. relations with China and Russia

John Joseph Mearsheimer, is an American political scientist and international relations scholar, who belongs to the realist school of international relations and teaches at the University of Chicago.

In his 2023 interview the South China Post, Professor John Joseph Mearsheimer stated about U.S. relations with China and Russia:

“ The Americans have a vested interest in pivoting full force to East Asia, to contain China. The Americans view China as a more serious threat than Russia. It’s very important to understand that China is a peer competitor to the United States. China is a rising great power and is a threat to the US in ways that Russia is not. So the Americans have a vested interest in not getting bogged down in a war in eastern Europe, more specifically in Ukraine.

Furthermore, they have a vested interest in doing everything they can to make sure that Russia and China are not close allies. What happens as a result of the Ukraine war is that it’s almost impossible for the US to fully pivot in Asia.[57]

”

In his March 2022 interview with The New Yorker, Mearsheimer indicated:

“ I’m talking about the raw-power potential of Russia—the amount of economic might it has. Military might is built on economic might. You need an economic foundation to build a really powerful military. To go out and conquer countries like Ukraine and the Baltic states and to re-create the former Soviet Union or re-create the former Soviet Empire in Eastern Europe would require a massive army, and that would require an economic foundation that contemporary Russia does not come close to having. There is no reason to fear that Russia is going to be a regional hegemony in Europe. Russia is not a serious threat to the United States. We do face a serious threat in the international system. We face a peer competitor. And that’s China. Our policy in Eastern Europe is undermining our ability to deal with the most dangerous threat that we face today.[58] ”

In 2016, Mearsheimer said: "Russia was a declining great power."[59]

The future of Russia. The kings of wishful thinking versus a more realistic scenario

See: The future of Russia. The kings of wishful thinking versus a more realistic scenario

User Conservative's international relations essays

Vladimir Putin in a KGB uniform.

See also: Vladimir Putin is a corrupt kleptocrat and an authoritarian

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External links

References

  1. ↑ We Made History: Citizens of 35 Countries Overestimate Their We Made History: Citizens of 35 Countries Overestimate Their Nation’s Role in World History, Journal of Applied Research in Memory and Cognition, Volume 7, Issue 4, December 2018, Pages 521-528
  2. ↑ What Everyone Needs to Know about Russia Under Putin - FPRI's 2018 Champagne Brunch for Partners, video about the strengths and weakness of Russia by the history scholar Steven Kotkin who has specialization related Russia
  3. ↑ What Everyone Needs to Know about Russia Under Putin - FPRI's 2018 Champagne Brunch for Partners, video about the strengths and weakness of Russia by the history scholar Steven Kotkin who has specialization related Russia
  4. ↑ Russian ‘LGBTQ propaganda’ law signed by Putin explained, Russia Today, 2023
  5. ↑ Russian authorities want to outlaw ‘LGBT’, Russia Today, 2023
  6. ↑ Gay rights in Russia: Facts and Myths, RT.com
  7. ↑ The Putin Paradox: The Missed Opportunity of 1989 & Beyond | Feb. 12, 2020
  8. ↑ Putin Debate | Richard Sakwa | Oxford Union, video, 2020 (Talks about stagnation in Russia)
  9. ↑ How Conservative Are Russians? Findings from the 2021 LegitRuss Survey, Ponars Eurasia, 2022
  10. ↑ 10.0 10.1 10.2 10.3 10.4 Russian fertility rates fall to record lows on the back of a deteriorating economy and sanctions pressure, bne IntelliNews, 2022
  11. ↑ Putin's demographic failure in Russia, LeMonde, September 29, 2023
  12. ↑ Why Is Russia So Unproductive?, Moscow Times, 2019
  13. ↑ Why Is Russia So Unproductive?, Moscow Times, 2019
  14. ↑ Russia Seeks Africans to Fix its Workforce Shortages, Center for European Policy Analysis, March 9, 2024
  15. ↑ Russian Federation ranking in the Global Innovation Index 2023
  16. ↑ Russian Federation - Global innovation index (0 = Weakest)
  17. ↑ Russian Federation ranking in the Global Innovation Index 2023
  18. ↑ Russian Federation - Global innovation index (0 = Weakest)
  19. ↑ Bureaucrats and Russian Transition: The Politics of Accommodation
  20. ↑ Is Russia the World’s 5th Largest Economy in GDP, PPP?, Russia Matters website, 2023
  21. ↑ [https://www.ebrd.com/downloads/research/economics/publications/specials/diversifying-russia.pdf Diversifying Russia], European Bank
  22. ↑ Russian Economy About to 'Hit the Ice,' Putin Ally Warns, Newsweek, November 23, 2023
  23. ↑ Analysts Predict 42% Decline In Russian Oil Production By 2035, OilPrice.com
  24. ↑ Russia Prime Costs: Crude Oil Extraction
  25. ↑ Can Russia’s War Chest Withstand the New Oil Cap?
  26. ↑ Can Russia’s War Chest Withstand the New Oil Cap?
  27. ↑ Trump has Putin ‘over a barrel’ with aggressive energy policy, defense of the West, CNBC, 2017
  28. ↑ Resilient, stable, sustainable: The benefits of economic diversification, Booz & Company, 2011
  29. ↑ Demographic crisis in Russia by Adam Gwiazda, 2019
  30. ↑ Demographic crisis in Russia by Adam Gwiazda, 2019
  31. ↑ What do outdoor toilets tell us about Russia?, Euro Topics Press Review, April 3, 2019
  32. ↑ attendance at Russian Orthodox church services in Russia has dropped to around one percent.
  33. ↑ Russians Are Not Waiting for a Church Boom, 2019
  34. ↑ Religious Belief and National Belonging in Central and Eastern Europe, Pew Research, 2017
  35. ↑ RUSSIA 2017 INTERNATIONAL RELIGIOUS FREEDOM REPORT.
  36. ↑ Russia’s Economy, War in Ukraine, and Hopes for Post-Putin Liberalization, Davis Center for Eurasian and Asian Studies, Harvard University, December 4, 2023
  37. ↑ Russia: Prospects for Growth and Convergence by Sergey Drobyshevsky (Scientific Director, Gaidar Institute for Economic Policy; Managing Director, Russia’s G-20 Expert Council
  38. ↑ MOSCOW BLOG: Russia is stuck in the middle income trap, bne Intellinews, December 21, 2017
  39. ↑ [BOFIT Forecast for Russia 2024–2026], Bank of Finland Institute For Emerging Economies, 25 March 2024
  40. ↑ Not Too Hot, Not Too Cold: Are We In A Goldilocks Economy?, Forbes, 2022
  41. ↑ Is Russia's economy under pressure?, Roundtable video, March 5, 2024
  42. ↑ Is Russia's economy under pressure?, Roundtable video, March 5, 2024
  43. ↑ The “no human” factor: How Russia’s workforce shortage rolls back its economic development
  44. ↑ Is Russia's economy under pressure?, Roundtable video, March 5, 2024
  45. ↑ Is Russia's economy under pressure?, Roundtable video, March 5, 2024
  46. ↑ How long can Putin afford to wage war in Ukraine?, DW News 4-19-2024.
  47. ↑ How long can Putin afford to wage war in Ukraine?, DW News 4-19-2024.
  48. ↑ [Putin’s war will soon reach Russians’ tax bills], The Japan Times, April 28, 2024
  49. ↑ Russia’s Demographic Collapse Is Accelerating by Paul Goble, Jamestown Foundation website, 2022
  50. ↑ In Siberian coal country, signs of Russia’s shrinking population are everywhere. It ‘haunts’ Putin, Washington Post by Isabelle Khurshudyan, 2020
  51. ↑ Putin’s War Escalation Is Hastening Demographic Crash for Russia, Bloomberg News, October 18, 2022
  52. ↑ Russia’s population is in a historic decline as emigration, war and a plunging birth rate form a ‘perfect storm’, Fortune magazine, 2022
  53. ↑ Demographic crisis in Russia by Adam Gwiazda, 2019
  54. ↑ Searching for a New Silver Age in Russia: The Drivers and Impacts of Population Aging, World Bank, 2022
  55. ↑ Searching for a New Silver Age in Russia: The Drivers and Impacts of Population Aging, World Bank, 2022
  56. ↑ Aging in Russia by Olga Strizhitskaya, PhD,The Gerontologist, Volume 56, Issue 5, October 2016, Pages 795–799, https://doi.org/10.1093/geront/gnw007
  57. ↑ The West needs to prepare for ‘ugly’ Russian victory in Ukraine, which will reward China, leading US political scientist warns, South China Morning Post
  58. ↑ Why John Mearsheimer Blames the U.S. for the Crisis in Ukraine, The New Yorker, March 2022
  59. ↑ Why is Ukraine the West's Fault? Featuring John Mearsheimer
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