The recent economic news out of Russia has been unremittingly awful, and the longer-term future doesn’t look much brighter.
It seems Vladimir Putin’s petro state has hit a wall, with the government last week reporting economic growth at a disappointing 1.2 percent in the third quarter, over the year-ago period. The Russian economy has been decelerating since the end of 2011, when gross domestic product expanded by 5.1 percent. Meanwhile, Russian Economy Minister Alexei Ulyukayev recently broke the news that the country’s share of the global economy is likely to shrink. Government forecasters project an average growth rate of 2.5 percent each year through 2030, below the global average of 3.4 percent or 3.5 percent. At the same time, the U.S. shale-energy boom is complicating life for Putin, whose government finances and political power are tethered to oil and gas exports.
Now yet another economic study, this one charting out trends to 2100 or so, suggests the entire 21st century may feature subpar growth for Russia. A team of economists from the Gaidar Institute for Economic Policy and Ranepa say Russia already faces serious fiscal challenges, despite official statistics that show a solid government financial position.
The economists analyzed Russia’s likely future financial obligations such as pension payments and social spending, as well as expected taxes and additional receipts, based on the country’s economic growth trajectory. They concluded that Russia faces an eventual fiscal gap of $28 trillion unless the economy grows far faster than predicted or the government raises taxes dramatically.
Russian fatalism? Yes, this is in some ways a thought experiment—who knows what Russia, let alone the world, will look like in 2063?—that assumes some brilliant Russian leader of the future doesn’t enact the right reforms or otherwise figure out a way to get the economy streaking ahead. Still, the working paper submitted to the National Bureau of Economic Research, titled Russia’s Fiscal Gap (PDF), points to some worrisome trends for Putin’s current government. Here are five of them:
1. Falling Energy Revenue. Russia is currently the world’s biggest energy exporter. Natural gas and oil represent some 70 percent of exports, compared with less than 50 percent in the mid-1990s, providing half of the government’s revenue and roughly 17 percent of GDP, according to the European Bank for Reconstruction and Development. That bounty may not last forever.
2. Shrinking Population. Russia may be facing a steady exodus of citizens over the next century.
3. Smaller Workforce. Migration trends and an aging population will mean fewer workers.
4. Dwindling Consumers. Russia’s overall projected population decline—unless you buy into the optimistic scenario in the next chart—will mean fewer potential consumers.
5. Add it all up, and it becomes clear why Russia’s outlook for economic growth may prompt some to reach for the Stoli.