By Andrei Skvarsky.
Russia’s Renaissance Capital argues that the likeliest explanation of Russia’s current economic slowdown is a middle income trap, a situation where a fast-growing economy gets stuck after reaching a certain level of per capita income.
“Fast-growing economies, including Russia, eventually slow down as the easy catch-up productivity gains relative to developed economies are gradually exhausted,” Ivan Tchakarov, RenCap’s chief economist for Russia and the CIS, says in a research piece entitled “How Russia May Turn into Another Greece”.
Japan and Germany have been through similar patterns after the Second World War, rebuilding rapidly by availing themselves of the latest technologies and industrial processes – “the so-called advantages of backwardness”, he says, citing US economist Alexander Gerschenkron.
Tchakarov also cites a recent study by the United States’ National Bureau of Economic Research (NBER) as suggesting that fast-growing economies hit a middle income trap when their per-capita GDP levels reach around $16,000 per year in constant 2005 international prices.
Western Europe, Japan, South Korea, Singapore, Hong Kong and Taiwan have all ended up in this situation at different times when their per capita GDP levels got to around $16,000, Tchakarov says.
Tchakarov is sceptical about common ideas that Russia’s decelerating growth is the result of relatively low investment activity in the aftermath of last year’s domestic political cycles, the fading real purchasing power of consumers because of rising inflation, or the bleak situation in Europe and the financial crisis in Cyprus.
RenCap estimates that Russia’s per capita GDP level will reach $16,016 in 2013.
“Russia is not only hitting the crucial per-capita GDP threshold, but it is also in a much worse position in this respect than others in the BRIC universe. In particular, we estimate that China will hit the middle-income trap only in 2020, Brazil in 2024 and India in 2038,” Tchakarov says.
Russia’s woes “may be here to stay for longer than expected”, he says, citing a government announcement that GDP for the first quarter of 2013 showed year-on-year growth of only 1.6%, the weakest performance since the fourth quarter of 2009.
Sorry, comments are closed for this post.