It’s true that Russia’s economy isdon’t have any easy choices: monetary easing will likely spark inflation, and the state’s ability to engage in fiscal pump-priming is highly constrained. Growth over the next few years will be decidedly sub-par when compared to the 2000 boom years and even to the modest 2010-12 bounce back from the Great Recession.
However, if Russia really was rapidly approaching an economic dead-end, if there was increasingly recognition that its model was not going to survive, you would expect to see the Russian government’s borrowing costs go up. Yes Russia’s stock of government debt is not particularly large (at only around 10% of GDP) but if the market came to an understanding that the economic situation was going to geta lotworse in the not too distant future then investors would demand higher returns. Demand for Russian debt would go down, and the interest rates on that debt would go up. Economics 101.
And that’s exactly what happened during the worst days of the 2008-09 crisis: Russia’s borrowing costs skyrocketed from around 7% to almost 11% because there were serious, and perfectly understandable, doubts about Russia’s ability to weather the economic storm.
Since the crisis ended, however, the interest rates on long-term Russian government securities haven’t done much – they’ve bounced around within a relatively narrow range and are at about the same level now that they were back in 2006. This would seem, to me at least, to reflect market expectations of business as usual: not overly-rapid economic growth, but certainly not some sort of spectacular collapse.
Is it possible that the bond market is wrong? Sure. It’spossiblethat the market is wrong just as it ispossiblethat Putin will be overthrown before the end of the year or that I will win the lottery. Almost anything is possible. But it certainly does not seemlikelythat the bond market would be so studiously immune to a mounting economic catastrophe. What that chart says to me is that things will continue in pretty much same vein, and that there aren’t going to be any big changes one way or another.
Russia’s economy might not be performing particularly well at the moment, but there’s very little evidence that it’s going to come screeching to a halt. So if like many Westerners you’re eagerly waiting for Putin to be ousted by a crippling economic crisis, you’re going to be waiting for a long time.