Russia on the rebound

A decade after Russia's default and decline, its economy is on the rebound. Even births are up.

A decade ago, Russia was considered to be in near terminal decline. In 1999, It had recently defaulted on its debt and GDP was only $196 billion, less than in Sweden or New York City. Meanwhile, the population was in steep decline with only 1.27 million births (1.25 million if you exclude infants that died before their first birthday) in 2000 a nation of 147 million, while the number of deaths was 2.23 million, meaning that the population declined by almost a million per year.

Apart from the permanent seat in the U.N Security Council and the large nuclear weapons arsenal it inherited from the Soviet Union, there seemed to be no basis for considering Russia to be a great power, much less a super power like the Soviet Union.

The general feeling in Russia at the time was one of great humiliation as the former super power had seemingly been transformed into a dying and impoverished "has been" nation.

Since then, a lot of things have changed. The Russian government has run surpluses and paid back its foreign debts and despite a set back in 2009 due to the global crisis, growth has been generally very high during the 2000s, and GDP rose to 39 trillion rubles, or roughly $1.3 trillion at current exchange rates. That is still smaller than for example Spain or California, but it is a lot more than Sweden or New York City.

The main cause of the rebound in the Russian economy has been the strong increase in commodity prices, especially oil. By contrast, in the late 1990s commodity prices were unusually low, something that contributed to the crisis at that time. Another key reason for the boom is the low flat tax instituted in 2001.

Meanwhile, in part as a result of the improved economic conditions and in part because of efforts by the government to encourage births, the number of births has soared, from 1.27 million to 1.72 million in 2008, even as the overall population fell from 147 million to 142 million, meaning that the crude birth rate rose from 8.6 per 1000 inhabitants to 12.1. The number of deaths has by contrast declined from 2.23 million to 2.08 million, with infant deaths falling particularly much, from 19,300 to 14,500.

During the first 9 months of 2009, births increased an additional 3.7% while deaths dropped an additional 4.2%.

Because of the steady increase in births and decrease in the number of deaths, the drop in Russia's population might soon start to stop its contraction and start to increase, especially if you consider net immigration (while Russia has net emigration to Western countries, it has a larger net immigration from other parts of the former Soviet Union).

On the other hand, the increase in births and decrease in deaths will particularly in the short term increase Russia's dependency ratio. But with the number of people in the age of 15-64 being 71.6% of the total, compared to 63.9% in Japan, this problem will be manageable. Furthermore, with the number of children in the age group 0-14 being bigger than in Japan (14.7% versus 13.4%), while the number of people in the age group 50-64 is much smaller (17.8% versus 20.6%), the coming drop in the working age population will be much smaller than in Japan.

Russia still faces significant certain or potential problems, in the form of a corrupt justice system, limitations in free speech and potential renewal of separatist insurgencies in Chechnya and elsewhere and the dependence on the commodity sector makes the economy vulnerable for another drop in commodity prices. But clearly, the future looks a lot brighter for Russia than it did a decade ago.

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