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25 Feb, 2013 12:19

Russia to become developed state in 7 years - report

Russia to become developed state in 7 years - report

Russia will become a developed country with low inflation, a sizable middle class, and much slower economic growth rates in just seven years according to research from Bank of America Merrill Lynch.

Ironically the research argues that the country’s problems, such as a declining population, will become the catalysts for these changes and will actually drive the country to improvement in internal consumption.

“By the year 2020, Russia will turn into a developed country thanks mainly to its demographic problems,” the research by Vladimir Osakovsky of Bank of America Merrill Lynch suggests.

The Russian Ministry of Economic Development also supported this concept, Finmarket.ru reports. Economists believe that scarce human resources will force employers to compete for qualified workers. Hence higher salaries will boost internal consumption. Experts of the Organisation for Economic Co-operation and Development however have disagreed with such a notion.

According to analysts of the Russian Higher School of Economics, “in the long term perspective of the world economy development before 2060 Russia’s share in the global economy is steadily declining (as opposed to the recent long term forecast of the Russian Ministry of Economic Development).” They named the demographic problem as a major reason bashing Russia’s apparent decline.

According to Ivan Tchakarov, chief economist at Renaissance Capital, the existing demographics data are not enough to draw this conclusion.

We do know that demographics are an issue for this country and we do know that the population is declining creating some of the conditions for Russia to become a more Western-like economy. But we also have to take into consideration such factors as the accumulation of capital and the productivity of the remaining labor force. So I think that looking out from now it’s difficult to say what we’ll become in ten years, it’s more a matter of speculation,” Tchakarov told RT Business. 

As for the inflation level and the GDP growth, the economist expresses his agreement with his American colleagues: “We have already seen a considerable reduction in inflation in the last couple of years which is mainly due to the Central Bank’s policies as it decided to change its targeting from the exchange rate to inflation, and I think it will stay the case. As far as the GDP is concerned, I think we’ll be seeing a slower growth rate. For example, between the two major crises, the internal one of 1999 and the international recession of 2008, Russia’s economy was growing at 7% per year. Now the tempo has already slowed down to 4-5% per year, which is natural for any country along its route of development.”

I think from now on we certainly will not see 7% growth in Russia’s economy, it will stay somewhere between 3-4% per year,” concluded the expert.