Russia Aims To Be Worlds Fifth Largest Economy By 2023

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russian_bearRussian Prime Minister Dmitry Medvedev has confirming an economic overhaul plan to propel Russia into one of the world’s top five economies in PPP (purchasing power parity), by 2023. Currently the country is in 6th position, just behind Germany.

Current Global Rankings In PPP Terms

Current GDP (International $, billions)
China 25,270
EU 22,023
United States 20,494
India 10,505
Japan 5,594
Germany 4,356
Russia 4,213

PPP is an economic term designed to compare different countries’ ability to purchase a given unit of a good, or common basket of goods and services. It is used to measure actual purchasing ability. For example, how much is needed to buy US$100 worth of goods in the same quantity of products in each country. It is often considered a better way to manage actual purchasing power than other comparative measures. Given the Russian ambitions, it would mean that the average Russian would be able to buy more goods with US$100 than their German equivalent in 2023.

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According to the Russian government’s estimates, the country’s GDP will grow by only 1.3% in 2019 (compared to 2.3% last year), but the following year it will start to accelerate, first to 2% (in 2020), and then to 3.1%, 3.2% and 3.3% in the following years respectively.

“Such growth rates will be enough to close the gap between Russia’s GDP at PPP and that of Germany, which holds the 5th position in the world, and will make it possible to maintain the positive lead compared to Indonesia, which is in 7th position. It will also be above the predicted growth rate of the world economy.” Medvedev states.

However, the Russian government’s predictions of such a growth rate are not currently shared by any investment banks or international organization. The IMF, for example, predicts that Russia will continue to lag behind the world growth rate, with its proportion of the world GDP shrinking from 3.12% to 2.79% by 2024. Oxford Economics predicts a slowdown from 2.3% last year to 1.4% this year and 1.2% in 2020. The Economist Intelligence Unit expects no more than 1.6-1.8% over the next few years.

Although the government plans to invest nearly 25 trillion rubles (around US$384 billion) in the economy for national projects, the problem is that this “acceleration” will be financed through raised taxes and pension growth, which will hit businesses and consumers, explains Natalia Orlova, chief economist at Alfa-Bank.

Chris Devonshire-Ellis of Dezan Shira & Associates comments “The problem with assessing Russia’s future economic performance is that there are too many variables that could come into play; and especially an unpredictability by the United States, fluctuating oil prices, a lack of date from within Russia and the issue over sanctions. No Western analysts wish to make predictions under such circumstances so the trend is to mark Russia down. But this also may err too far on the negative aspect. One shouldn’t therefore discount the possibility that Russia would not reach this target either – and with trade flows increasing with China and Asia in particular, it wouldn’t surprise me if Russia’s performance was indeed rather better than that anticipated by Western analysts. If correct, that means the Russian consumer will have more disposable income and an ability to buy consumables at rates more competitive than in Germany very soon.”

 

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Russia Briefing is produced by Dezan Shira & Associates. The firm advises international businesses on investing, setting up businesses and administering them throughout the Eurasian region, including Russia, China, India & ASEAN, and maintains offices and partners in each of these countries and regions. For assistance with investing in Russia, or for Russian businesses wishing to invest in Asia, please contact Maria Kotova at maria.kotova@dezshira.com or visit us at www.dezshira.com.

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