By Andrei Skvarsky.
Swiss bank Lombard Odier’s investment chief has brushed aside a common theory that blames Russia’s current economic slowdown on a “middle income trap”, a situation where a rapidly developing economy practically stalls when incomes reach a certain level.
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The source of the problem are balance of payments (BOP) dynamics, Paul Marson argued at a press breakfast in Moscow last week in comments requested by EmergingMarkets.me.
BOP deficits in the West that had been precipitated by the world financial crisis brought about BOP surpluses in emerging markets, including Russia, while today’s contracting Western deficits mean shrinking surpluses in emerging market countries, he explained.
Russia is not the only emerging market where growth has slowed down. China is also slowing though it still has relatively low incomes, he pointed put.
The Russian economy is much too foreign-driven and still too dependent on oil exports, according to Marson, who had jobs with the Bank of England, JP Morgan, Goldman Sachs and Morgan Stanley before joining Lombard Odier, a Geneva-based firm founded in 1796.
Today a country is said to have fallen into a “middle income trap” when the average annual per capita income in it has reached around $16,000.
Typically, it is a situation where the country’s exports can no longer compete with those from lower-income economies price-wise but cannot yet rival products from advanced economies value-wise.
Marson, however, was utterly sceptical about the $16,000 estimate. “And what’s that $16,000 anyway?” he said.
Kingsmill Bond, chief strategist of Sberbank CIB, the investment arm of Russia’s biggest lender Sberbank, last week confirmed conclusions that Russia is experiencing middle income problems and, in comments requested by EmergingMarkets.me, dismissed the BOP idea as “nonsense”.
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