Russian GDP

[Bruno]

A simple arithmetic calculation shows that if the current speed of growth is preserved in five years Russia’s GDP will be equal to that of Germany

And what ? In total value, Russia will be almost like Germany... but it stay a very low result for a country like Russia... Why compare a country with 11 time zone with a little one like Germany...

If you take the nominal GDP ( per capita ), Germany have the position 16, with $32929.58 by citizen... Russia is only 71, with $4060.57 by citizen... and when compare with the top 1, Luxembourg with $66463.78 by citizen, Russia is very far from the top...

And more, the grow of Russian GDP is due to natural ressource mainly but :

GDP does not measure the sustainability of growth. A country may achieve a temporarily high GDP by over-exploiting natural resources or by misallocating investment. For example, the large deposits of phosphates gave the people of Nauru one of the highest per capita incomes on earth, but since 1989 their standard of living has declined sharply as the supply has run out. Oil-rich states can sustain high GDPs without industrializing, but this high level will not be sustainable past the point when the oil runs out. Economies experiencing an asset bubble, such as a housing bubble or stock bubble, or a low private-saving rate tend to appear to grow faster due to higher consumption, mortgaging their futures for present growth. Economic growth at the expense of environmental degradation can end up costing dearly to clean up; GDP does not account for this in places such as China.

Russia need to invest again in educational system... high level scientific can find/create new thing who will have high value in a near future... Having high number very fast is only interesting for old politic men who wich win the next election...

[andrewfi]

Russia is going through a growth phase, it can be compared to many other 'middle class' nations suchas Brazil, Venezuela, Argentina or Mexico. The mistake of many un-Russians, particularly Americans is in comparing Russia with the US, or other top-table economies.

It will not be long before Russia's GDP is greater than that of Germany, the Uk or France but a better target and comparison might be Spain, or Portugal where there has been very rapid economic growth taking these countries from lower class to upper middle class status in the space of a single generation. The big difference is that Russia, like Brazil and Venezuela is an exporter of primary resources (stuff from under the ground). Like these countries, true wealth in breadth and depth will not come until the country moves from being an exporter of primary resources into a processor of them and then manufacturer and exporter of unrelated goods and services.

The number of time-zones covered is immaterial, more important is the GDP per capita and how closely it aligns with personal incomes. Already Russia is more egalitarian than the USA, in terms of its Gini coefficient (a measure of equality of income), this is a good start. Infrastructure such as education, roads etc all take time, people and money. Given a free market economy, the resources will flow to where the most profit can be made (as it should). It is almost inevitable, absent civil, or national war that Russia will follow the example of the UK, USA and other top table nations and move to an economy that is based upon more than primary extraction of resources. Given that given and the HUGE amount of resource wealth locked up in the soil of Russia, it is almost inevitable that Russia will become a very wealthy nation. My hope is that there are enough RUssians around to enjoy the wealth.

[Bruno]

but a better target and comparison might be Spain, or Portugal where there has been very rapid economic growth taking these countries from lower class to upper middle class status in the space of a single generation.

These country like Spain or Portugal are not really good example... the rapid economic growth was pushed with European financial help before they join the core of Europe... and don't think that it is charity from the rich European country... simply a method used to rise the living standart and stop a possible immigration flux... Europe make the same with Poland now... they invest in the agriculture sector because of the fear of immigration of peasant when border will be fully open... A other reason to rise the level of life from more poor European country is to open new market to product from rich European country...

In some way, Russia make the same with some of the country of ex-USSR... business relation with Ukraine, Moldova is a example... some other republic at the south make new financial/business accord with Russia...

My hope is that there are enough RUssians around to enjoy the wealth.

This is not really sure... it seem that the money flow transit only in a few hands... the majority of Russian don't enjoy the result of the economic grow... some are more poor now that in soviet time when everybody was with a minimum income... just take a look at the street the evening, when old babushka seek glass bottle in trash, when street children collect paper for earn a few kopeck...

[coco]

Good post Andrew .For the investors in Russia.
www.Rufo.de  mostly in German but allot of English

[groovlstk]

Last week I met with the president of my company's international division. After we settled an issue that was the reason for our meeting, I asked him why we didn't have an affiliate office in Moscow or St. Petersburg. He's a very sharp guy, and he instantly replied that Russia's GDP is about equal to the Netherlands, but spread out over an enormous landmass. That landmass size is critical when your business needs a reliable distribution infrastructure, which Russia currently doesn't have.

There went my dream of moving to Moscow in a few years...

Off topic but I'm sure of interest to most people here is a piece I read recently in the Atlantic Monthly. The article was based on another article published in Foreign Affairs, "The Rise of U.S. Nuclear Primacy." Basically, the authors convincingly show that in a very short time the US will have the ability to wipe out Russia and China's entire nuclear arsenal in a first strike. Before you think this is a good thing, consider the author's conclusion:

"Confronted with the growing nuclear imbalance, Russia and China will be forced to try to redress it; but given America's advantages, that effort, as Lieber and Press note, could take well over a decade. Until a nuclear stalemate is restored—if it ever is—Moscow and Beijing will surely buy deterrence by spreading out their nuclear forces, decentralizing their command-and-control systems, and implementing "launch on warning" policies. If more than half a century of analyzing nuclear dangers and "crisis stability" has taught us anything, it is that all these steps can cause crises to escalate uncontrollably. They could trigger the unauthorized or accidental use of nuclear weapons; this could lead to inadvertent nuclear war."

[BillyB]

Russia's inflation is out of control. What good is making 20% more money when everything costs 30% as much? But I am one that believes Russia is better off than it was during Soviet times.
http://www.cia.gov/cia/publications/factbook/geos/rs.html

groovlstk, currently one American nuclear ballistic missile submarine can take out 240 cities in the Northern Hemispere. It's hard enough to think of 240 city names.

[andrewfi]

whoops

[andrewfi]

groovlstk - you missed a golden opportunity that, if you were as sharp as your boss might be, would have been to your benefit. You could have told him that 80% of the wealth of Russia lives in two cities and that those two cities are close to each other and well linked. For very many products and services Russia is actually a juicy morsel for just this reason. GDP per head in Moscow and Saint Petersburg is actually rather high. There is a reason why quite a few firms that need reliable and well developed distribution infrastructure do rather well in Russia...

Next time be better prepared.

BillyB - you make the point of the writers of the original piece very well. IIRC from when I read the piece in Foreign Affairs a couple of months ago the writers' thesis was that the US is making some significant policy errors that are directly contributing to a destabilisation of the status quo that has held for half a generation. The problem, they suggest is exactly the kind of thinking inherent in your words and is why, for example, Iran will likely continue to chart an independent course.
Such a threat, as is conveyed in your words, and in the actions of the US in implementing its foreign policy strategy will almost certainly lead to an increasing move by RUssia, China and others to a tripwire posture whereby firststrike from the inferior force becomes the preferred strategy. This is more dangerous than MAD for obvious reasons and is the result of the undoing of sterling work in US foreign affairs since the Nixon administration.

Also, Russia is a very big country and so are its satellite states.

[DonAz]

If there was readily available credit in Russia, I believe the Russian economy would grow by leaps and bounds. Being that it is still stuck in a  'cash only' mode, growth has been stymied some what , but still it grows.

DonAz


PS: Why are we talking about bombs in this thread?

[andrewfi]

BTW - Word to the wise, Billy, inflation in Russia is currently running at about 8.5%. Given price rises of primary energy sources, this is actually pretty well controlled. Inflation is expected to fall a couple of points next year as enrgy price rises become fully factored into the economy.

Donaz - when you wrote about credit, what do you mean? Do you refer to consumer credit or commercial credit?

Commercially there is more moeny slooshing around in Russia than there are projects with a sufficient ROI to justify spending the money.

Consumer credit is growing very rapidly, some consumer retailers are reporting that over 30% of their sales are now made on credit and that includes the regions. The true problem is decreasingly lack of availability of credit but the long tail of those who do not earn enough to be able to have a surplus of disposable income to fund credit repayments, a very different thing.

[Rvrwind]

Consumer credit is growing very rapidly, some consumer retailers are reporting that over 30% of their sales are now made on credit and that includes the regions. The true problem is decreasingly lack of availability of credit but the long tail of those who do not earn enough to be able to have a surplus of disposable income to fund credit repayments, a very different thing.

Thats about what I was gonna say but ya' beat me to it! 

[KenC]

My in laws report that consumer credit is growing by leaps and bounds in Russia.  In fact they just got an approval on their very first car loan today.
KenC

[andrewfi]

For comparison, the dollar has decliend against the Euro by about 3.5% since last June (equivalent to inflation of 3.5%). The Ruble is effectively unchanged. US consumer inflation is running at about 4.6%, So, in reality, the value of money has changed by about the same amount in each country.

So, is the US economy suffering from uncontrolled inflation? If it is then so is Russia's and vice versa.

[BillyB]

Such a threat, as is conveyed in your words, and in the actions of the US in implementing its foreign policy strategy will almost certainly lead to an increasing move by Russia, China and others to a tripwire posture whereby firststrike from the inferior force becomes the preferred strategy.

Russia and China and most all other nations was always on the move except the USSR went backwards for a while. That's a normal part of the game nations play to jockey for position in this world. No surprise. The problem is that Russia's economy among others can't sustain too big a move without going bankrupt.

A first strike from an inferior force as a strategy? And what's that going to do for an inferior force? Win a war? The USA and the USSR have always known nuclear war is designed for all to lose. There are NO winners and nukes are to prevent war against one's nation. The only reason an inferior force would use nukes in a first strike is when an insane leader on his death bed wants to go out with a bang by pushing the button with no regard to the results of a counterstrike to his people.

Andrew, the economy in the U.S is doing very well and unemployment is very low. You can put up depressing stats all you want but the average American is doing good and living better than in the past. I just bought an exchangeable six tip screwdriver for 19 cents! The Chinese make our money stretch far over here.

With all the improvements Russia is making with giving people credit, there's only so much people that is to be trusted with credit cards. Are Russians used to sending out payments every month in the mail? Is the mail system trusted enough to the point no one will steal your payment? I know people in Tashkent pay their utility bill direct to the utility man that comes to the flats occasionally and not through the mail. Also the rest of Russia will be left behind Moscow and St.Pete. As expensive as Moscow was when I was there, I'd say open a MacDonald's! The ones I saw were very reasonably priced compared to cafes and were always packed with people. Capitalism at work. The prices are low and people's money goes a lot further for other things after eating a burger.

[groovlstk]

groovlstk - you missed a golden opportunity that, if you were as sharp as your boss might be, would have been to your benefit. You could have told him that 80% of the wealth of Russia lives in two cities and that those two cities are close to each other and well linked. For very many products and services Russia is actually a juicy morsel for just this reason. GDP per head in Moscow and Saint Petersburg is actually rather high. There is a reason why quite a few firms that need reliable and well developed distribution infrastructure do rather well in Russia...

Next time be better prepared.

Andrew, if you understood what "product" my company distributes and how it's distributed, you'd know that your assessment is wrong (if you are sharp enough, of course, which at times I doubt because of your willingness to shoot from the hip...). I can't elaborate, but the sort of contract my company must have in place before deployment isn't available in "Moscow/St. Pete" but must cover all of Russia.

[andrewfi]

Billy, you made a totally incorrect statement about something that you obviously know nothing about. There is no need to tell us how god things are in the US, you make the pint very well by doing so.

You might want to do some learning about game theory. And, no it ain't about playing games. Sometimes (often) a winning posture, as perceived by an inferior strength force, is not outright victory, but minimisation of loss. This is the basic principal that is often misunderstood/ignored by those who perceive themselves as being in the superior position. For current insights, look at the negotiating tactics of North Korea and Iran in the world, and by Venezuela in your continent.

Groovlstk, I don't know the product or service that you sell, but on general principals what I wrote was correct. The bottom line being that Russia is essentially a three market economy, Moscow, Saint Petersburg, the rest. I would be surprised that a firm that was seeking expansion would choose to ignore the first two as a market entry and, when you criticise me, don't forget that you, the 'expert', was shot down by your boss, eh! I would be surprised if an entry into a single, profitable market is not actually preferable to ignoring a market entirely. That was the point i was making. You might want to look at your thoughts again, there may well be an opportunity for you.

[BillyB]

Sometimes (often) a winning posture, as perceived by an inferior strength force, is not outright victory, but minimisation of loss. This is the basic principal that is often misunderstood/ignored by those who perceive themselves as being in the superior position. For current insights, look at the negotiating tactics of North Korea and Iran in the world, and by Venezuela in your continent.

Yes, the rest of the world has a tendency to go easy on nations like these. Giving free concessions so they act like good boys, when they want more, they pout or cut the locks at the nuclear reactor to further their nuke program until the world talks them down again or they have their nukes, whichever comes first.

And why does people who always disagree with you always talk about things they know nothing about and make incorrect statements? I guess everyone you disagree with is just plain dumb? I remember your theory on the other forum that the U.S is going to crumble or be an empty shell of it's former self in 20 some years, something to that tune. You're going to tell me you know what you're talking about there more than the experts running this and other nations that's going to overtake the U.S?

[andrewfi]

Billy - When you wrote about runaay inflation in Russia and gave a figure you were wrong, I pointed it out and that it was obvious that you did not know what you were talking about. Don't try to suggest that there is something wrong with me becasue when you write something incorrect I point it out. The problem is that when you proceed from a faulty assumption, or set of facts then the output is bound to be flawed.

Now that you know that the change in overall price levels in Russia and the USA are about the same, you can challenge your own assumptions and learn something. (or maybe not...)

BTW, you might want to go read the original article cited upthread, the journal is available in good bookshops and newsstands for about, IIRC $10. You could also take a look at game theory and how it relates to military strategy and foreign policy. When you do, you will probably have an 'AHA' moment that will change the way you think.

BTW Billy, you might wanna go refresh your recollections; they are also a tad flawed. That said, that the US is militarily overstretched is undoubtedly true, that the economic situation in which the country finds itself is both parlous and untenable in the long run and that this set of circumstances provides opportunities for others, undoubted. This is not news and many American patriots understand and know these things.

[BillyB]

Andrew, I've been to Russia twice. People there are paying a lot more for the same products as I am would here and the people in Russia makes on avg, less money. Inflation is hurting their economy and even if the people in Russia was making the same wages as Americans, they can't purchase as much.

Sorry, I don't care for an "AHA" moment. I've read enough articles and books to form my opinions on how the world runs.

[andrewfi]

Billy, OK, we are going to have to go in baby steps for you.

Inflation is not about the price that somebody pays at a point in time, it is about the change in price that somebody pays over a given period of time.

So, just as when I come to the US, I see things that are both less and more expensive than in my home country, that has nothing to do with inflation, it is about the local market and economy. Same same in Russia.

Inflation is when the price of goods and services changes (increases). So, if I come to the US and see that the average price of a house has gone from $100,000 to $150,000 in the period of a year, then there has been inflation in house prices of 50%.

So, your comment is well off point. We all know that some things are more expensive in Russia than the USA, give us some news please... We also know that many, many things are much cheaper, this is normal between any two markets.

Now, given your previous post, you might also be confusing changes in the prices that YOU pay in Russia for goods over time with inflation. It is a confusion often made by travellers. Your currency, the dollar has depreciated against the rouble by just under 5% in the past year, so from your perspective, given Russian inflation of about 8% and a devaluation of the dollar of about 5% you see a price change, in dollars of about 13% and things seem to have gone up by quite  lot. For the Russian living in Russia things  have gone up by about 8%, in rubles, but against a backdrop of a general increase in wages of about 10%, so they are on aggregate about 2% better off than last year. Simply put, the 'average' Russian can afford to buy about 2% MORE stuff than last year, you, assuming that your dollar income has remained static can afford about 13% LESS than last year, when you go to Russia.

Sadly, Billy, what you saw is nothing to do with inflation, but now that you can perhaps see what inflation is, you can start to understand how your faulty start point leads to inaccurate conclusions?

Perhaps you need to graduate to some better reading. What you have been displaying thus far does not do too much to demonsrate the efficacy of your previous reading and learning.

[Admin]

Andrew,

Your willingness to provide education and background is commendable. Can you please try to do it without the deprecating tenor?

Thanks,

- Dan

[andrewfi]

Try reading billy's posts eh? The context is useful. My replies measured, accurate and reasonable.

[BillyB]

Try reading billy's posts eh? The context is useful. My replies measured, accurate and reasonable.

Andrew,

You have a reputation for people not understanding you. The biggest problem is that you see the biggest, and most successful economy mixed with the strongest military and you can never seem to address/comprehend why the U.S. is successful. And you wonder why people don't comprehend you and you call them blind. Once you can admit the success of the U.S economy, people will start taking you seriously. Your first post addressed Russia's growth giving it rave reviews all while ignoring inflation. Then you try to say my exchange rate is giving me funny conversions when I darn well know Russians doesn't have the purchasing power pound for pound. Or roubles for roubles. I got my info from the CIA factbook and most other agencies that keep statistics will most likely have the same. Ask Elen how much better her life is since the USSR went down.

Russia's GDP- Real growth estimate is 6.4%  Inflation Rate(consumer prices) 11% Source: CIAfactbook. It's not that hard to understand.
http://www.cia.gov/cia/publications/factbook/geos/rs.html

[andrewfi]

Billy ~ You are doing it again.

Do you understand the words you are writing? I am making NO COMMENT about US military power, it is not germane. If it helps you to understand what you read though, I will bow down and worship at the altar of American military might as displayed by Vietnam, Greneda, the invasion of Panama, the increasingly peaceful situation in Iraq and Afghanistan, etc etc. Does that feel better? (I thought not!)

Ok, now to deal with the figures you quoted and the 'meat' of your post:
Real GDP growth is the growth in an economy, after accounting for inflation. Now, it is true that GDP is not a measure of personal wealth, but it is often a good proxy when looking at direction and magnitude. (people tend to not get richer during times when GDP is decreasing)

So, in the figures you quoted, but did not understand. (and bearing in mind that consumer prices are NOT a good proxy for the economy as a whole - but simply using them as given)

Growth in nominal percentage terms = real GDP growth + Inflation = 6.4+11=17.4%
Growth in real terms = nominal GDP growth - inflation = 17.4-11=6.4%
The Russian economy grew by 17.4%, year on year, but inflation 'ate' 11% of that growth.

So, using GDP growth as a proxy for personal wealth growth, as you have done, we find that 'mr Russian Dude' is earning 17.4% more than last year, but that prices have gone up by 11%. He is unhappy that prices have gone up and feels bad, but he forgets that he is actually 6.4% better off than last year, after inflation.

Guys/girls - I know the figures are not correct, but I am keeping things simple,OK! From my recollection, the net improvement for mr Russian Dude is about 3%, still not to be sneezed at and especially when taken in context of actual income distributions - the middle class and near middle class is growing rapidly in number and income.

[Bruce]

Andrew, as always I appreciate your economic insights and willingness to share them.  I can just draw my inference from my recent short trip over to Moscow and Tver.  All I did was drive out of and into Moscow.  There are now more lights on the main highway increasing tension and traffic, which actually prolongs the trip.  Shermetyevo II gets better and more efficient every time I am there.  Right now Kennedy airport needs to take lessons from Sheremetyevo II, but I am not so sure that is saying much.  Yes, there somehow is enough commercial credit in Russia for me to see alot of new construction in and around Tver.   I am not so sure the average guy will be able to shop in the new stores / small shopping centers mushrooming up in and around Tver - but it started that way in Moscow and now from all I read it appears the average Muscovite has significantly increased their income and can now buy the more plentiful goods.  OF course the average consumer everywhere I have been has significantly more purchasing choices.  Perhaps what is happening in Moscow will eventually get to the smaller cities / provences throughout Russia.

Here is my problem with inflation which perhaps you can help me with:  I do not believe existing structures, which provide the bulk of services for the existing society are accounted for ie. every day previous structures are deteriorating without proper maintenance /  $ investment for maintenance.  The biggest problems are water, roads, sewage infrastructure, piping in general etc.  which need significant government / private dollars to revitalize.  Years of pollution / waste sites need significant clean-up as well.  I believe eventually these huge structural problems will provide a huge drag on the Russian economy because they will have to be addressed for life to really improve.  This problem is only getting worse and I do not see a measurement for them.  Correct me where I am wrong on this one, but I expect that once the Russian government addresses these significant infrastructure problems there should be a huge spike in inflation or if done slowly will continuously add inflation points to the Russian economy.  Right now I look at this drag as a huge amout of hidden inflation.