Russian Economy 2011

Following a rough year in 2009, where the Russian economy dropped by 7.9%, GDP in Russia grew by 4% in 2010, and is expected to continue growing through 2011.

Russian Economy by the numbers

Russia’s economy is the tenth largest in the world, with a GDP of $1.477 trillion in 2010. As noted, that’s higher than in 2008, when GDP was a $1.232 trillion, but still lower than 2008, before the crash, when Russian GDP was at a peak of $1,667 trillion.

To give you a better idea of what these massive numbers mean, Russia’s GDP per capital in 2010 was $15,900. That compares with a GDP per capita of $47,123 for the United States, and a GDP of $88,232 for Qatar. In terms of income per capita, Russia ranks quite low on the scale – 51st in the World. However, if you convert that into GDP Purchasing Power Parity (PPP), which takes into account the relative cost of living in each country, Russia’s GDP ranks 6th in the world, behind the United States, China, Japan, India and Germany.

Russia’s Economic History

The Russian economy remains overshadowed by its Soviet legacy.

The economy collapsed after the fall of the USSR, following President Yeltsin’s decision to adopt radical economic reforms in order to transform Russia into a free market economy overnight.

The so called shock therapy approach that Yeltsin followed (after prompting by the USA, much of Europe and the International Monetary Fund) led to hyperinflation, the removal of Soviet price controls, and a dramatic collapse of the Russian economy. It is arguable that much of this collapse would have happened anyway (and indeed was necessary if Russia was ever to transition into a market economy), but it is likely that the process was hastened by the adoption of shock therapy.

Russia’s economy reached its low point in the 1998 Russian financial crisis, where dramatic swings in the global price of raw materials (particularly oil and gas) destabilised the Russian economy. GDP dropped by more than half, from $404.927 billion in 1997 to $195.906 billion in 1999, and it wasn’t until 2003 that the Russian economy crept above $400 billion again.

Since then, the Russian economy has grown rapidly, fuelled largely by exports of raw materials and energy resources such as oil and gas. The dramatic increases in the price of raw materials has helped to boost Russian income as well. As well as measuring raw numbers – GDP grew from $196 billion in 1999 to $1.6 trillion in 2008 – Russia’s position in the world shifted as it moved from the 22nd largest global economy to become the 11th largest economy in the world. The growth in income has led to a renewed confidence in Russia, and a much more assertive foreign policy under its last two Presidents, Vladimir Putin and Dmitry Medvedev.

Growth seems likely through 2011, but critics continue to worry that Russia’s economy is overly dependent on the export of oil, gas and other raw materials, and that other sectors of its economy are not strong enough to pick up the slack from any downturn should the global oil and gas prices fall significantly.

If you take a look at the graph to your left, you can see clearly that world oil prices have risen dramatically since 1998, and that the speed of the growth in oil prices quite neatly matches the speed in the growth of the Russian economy.