Ruminations on Russia

Apologies to the Daily Telegraph for failing to remember the link to this. But its yet more evidence that inflation and the dollar's collapse, or the Rbl's rise (the mental masturbation required to make a difference is not worth the effort). Surprisingly it is at the high end where restaurant spend is on the up and up. I thought that the pain was being felt by the "middle-class."

Electronic Telegraph (UK)

December 10, 2004

Russia's super-rich steer clear of shops as boom era ends By Julius Strauss in Moscow

In Moscow's elite Tretyakov Passage, a typical offering at Tiffany's yesterday was a gold, pearl and diamond necklace for about £14,000. In the windows of Gucci, Dolce and Gabbana and Tod's, shimmering behind a phalanx of security guards, some of the smaller accessories cost more than an average Russian earns in a year. For those with serious money there were the Bentley, Maserati and Ferrari showrooms next door. But yesterday, barely a month before Orthodox Christmas and despite a warm spell that brought temperatures up to around zero, the outlets where the super-rich shop were almost empty.

In Russia, which has enjoyed five years of vigorous growth under President Vladimir Putin, experts say it is too early to speak of an economic slump. But economists and even government officials say that the boom which has given Moscow more billionaires than any other city in the world is now over. According to the latest figures, economic growth has fallen to its lowest in 22 months. Industrial growth is back to the levels last seen after the crash of 1998.

Anton Struchenevsky, economist at the investment company Troika Dialogue (sic), said: "This is more than a slowdown. In the second half of 2004 we are talking about stagnation in five leading industries."

In his first term Mr Putin made the goal of doubling the country's GDP by the end of the decade his top political priority. In scenes reminiscent of the Soviet era, he is now frequently shown on state television urging government ministers to ever-greater efforts in the pursuit of national prosperity.

But two mini-slumps this year mean that even government forecasts now say that his economic goal can not be achieved before 2012 at the earliest. With year-on-year growth down to around 4.5 per cent in November, it could take much longer. The downturn comes at a time when oil prices, the main source of Russia's wealth, are at record highs.

After coming to power in 2000, Mr Putin laid the ground for broad-based reforms. His economics minister, German Greff (sic), was allowed to pursue a western-style liberalisation of the economy that brought foreign money pouring in. But in the past two years the siloviki, former colleagues from the security services with little time for liberal democracy and a pool understanding of economics, have won the president's ear. The result has been a new chill in the country's business community.

Some economists now believe that Russia is on the cusp of a return to a state-run economy.

The unseating of Ukraine's pro-Russian president-elect, Viktor Yanukovich, has all but dashed Mr Putin's hopes of revamping a regional empire on the ashes of the Soviet Union. Now the former KGB officer, who likes to model himself on one of the greatest Russian modernisers, Peter the Great, is in danger of seeing an even greater ambition - that of turning Russia into a strong, wealthy and modern country - go the same way.