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Russia’s slow road to ruin

05/03/12 @ 11:09 GMT by Simon Smith, Chief Economist


Of course, it was no surprise that Putin was re-elected as President of Russia over the weekend. But in the bigger picture, it’s a development that will further challenge Russia’s standing in the global economy. Already, Russia’s relatively poor performance poses a question mark over retention of its place within the BRIC ‘bloc’ (Brazil, Russia, India and China) given that it has failed to keep up with its major emerging market counterparts on most measures.

Whilst China and India (to a lesser extent) have played major roles in keeping the global economy moving in recent years, the Russian economy virtually stood still during a time that China has grown 32% in real terms (2008 to 2011). But this hasn’t drastically impacted on the currency, the ruble still holding up well vs. Eastern European currencies. Most of this is owing to the strong performance of the oil price, together with Eastern Europe’s exposure to the eurozone crisis.

But there have been more protests this time around and now Putin has a new six-year mandate. When Putin came to power in 2000, life expectancy in Russia was below the global average and has yet to close the gap. Other data reflects a similar picture of Russians being left behind and, as the world has shown over the past year, populations are increasingly inclined to vent their frustrations. Russia risks embarking down a road to ruin from which it will struggle to recover and the currency’s reliance on the oil price as a driver of value is, and may well continue, to fall.

Tags: oilrub

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