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Home Publications Blogs Beat the Press The I.M.F.'s Data Disagree With the NYT on the State of Russia's Economy

The I.M.F.'s Data Disagree With the NYT on the State of Russia's Economy

Thursday, 17 April 2014 07:21

The NYT headlined a piece on the dismal state of Russia's economy, "Russia economy worsens even before sanctions hit." The piece goes on to describe an economy in decline telling readers about Russians moving abroad and storing cash in safe deposit boxes and foreign currencies. It reports:

"Russia’s $2 trillion economy was suffering from stagflation, that toxic mix of stagnant growth and high inflation typically accompanied by a spike in unemployment. In Russia, joblessness remains low, but only because years of population decline have produced a shrunken, inadequate labor force."

The data from the I.M.F. tell a somewhat different picture. While growth has slowed in the last two years, per capita income has more than doubled in the country since Vladimir Putin took office in 1998. The NYT may not like Russia's "shrunken inadequate labor force," but members of this shrunken, inadequate labor force probably care more about the unemployment rate than the NYT's condemnations.

The I.M.F. projects an inflation rate of 6.2 percent for both this year and next. This is high for members of the 2.0 percent inflation cult that occupies central banks in the west and top economics departments, but folks familiar with economic data know that many countries have had long stretches of healthy growth with higher inflation rates. While the piece did find people who were unhappy about this inflation rate, people with better memories would recall that Russia had double-digit inflation as recently as 2008.

While the private equity investor who is one of the main sources for the piece predicts that Russia will default on its debt, it's difficult to see the basis for this assertion in the data. The I.M.F. reports that it has a deficit of less than 1.0 percent of GDP and its debt-to-GDP ratio have been on a downward course. It has a current account surplus. Furthermore, the I.M.F. shows that investment is almost 24 percent of GDP. This compares to less than 20 percent in the United States.

In short, the data for Russia reported by the I.M.F. would be consistent with the 80 percent approval rating for Putin that the article mentions, even if the economic picture painted by the NYT is not.

Comments (4)Add Comment
written by Kat, April 17, 2014 7:59
Miljenko Horvat, a private equity investor who ran Citibank’s office in Russia in the 1990s, said that Russia had simply failed to make itself economically relevant beyond its energy supplies.

Mr. Horvat, who now lives in Vancouver, British Columbia, said that he often challenged his Russian friends by making the following point: “I wake up in the morning and drink coffee from a machine made by a Swiss company, Nescafé. I wear something that was designed in France or Italy but probably made in Turkey. I get into a German car, look at a Korean phone, use a computer that was designed in California but made in Japan or Korea. Russia just doesn’t touch me in my daily life. It just doesn’t matter. It’s just not relevant. So where is the economic engine going to come from?”

Living in the US it is very difficult to imagine such a state of affairs.
written by JDM, April 17, 2014 9:16
Since Mr. Horvat mentions not one item he uses as either made or designed in Canada, where does he think his new home's economic engine is coming from? "In his daily life" he seems to be untouched by where he lives, and little more by the USA (how big an "economic engine" does a dozen computer designers provide California?). Why does he profess no great concern about these places?
Bad Russia
written by Slugger, April 17, 2014 10:17
I must have been dozing, but I can't remember when or why we decided that Russia is our enemy and bad. I remember the USSR and their leaders who were all evil and women who were all old and wore babushkas. Then the USSR went away, and Russian women looked like Anna Kournikova. Suddenly, Russians were bad again, and at their Olympics some reporter got a hotel room with a dysfunctional toilet. Now the Russians are putting military forces into a neighboring country which I am sure has nothing to do with NATO moving into four countries bordering Russia.
I am sure everything Russian is bad, but I wish someone would notify me when I am supposed to think the opposite. Of course, maybe that is the role of the NYT.
written by Anthony, April 17, 2014 11:59
Being a Canadian, I was thinking the very same thing as I read Horvat's comment. Of course, his description of Russia's oil-and-gas-driven economy is perfectly applicable to the Canadian economy of 2014--our manufacturing sector has been decimated since NAFTA, and the high dollar as a result of Canada's petro economy has further dampened our exports and reduced domestic demand. It is always surprising to discover one has purchased an item actually made in Canada--although there is a thriving micro-economy in the city of Toronto, where I live.

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About Beat the Press

Dean Baker is co-director of the Center for Economic and Policy Research in Washington, D.C. He is the author of several books, his latest being The End of Loser Liberalism: Making Markets Progressive. Read more about Dean.