Matthew Lynn's London EyeGet Opinion: Sanctions, drop in oil price best things that ever happened to Russia
Published: Apr 7, 2015 12:18 p.m. ET
Russia’s economy pivoting away from crony capitalism and energy
A round of punitive sanctions designed to cripple the economy. A collapse in the price of its key commodity. A currency in freefall and a central bank hiking rates to emergency levels while a corrupt, authoritarian government embarks on foreign adventures at potentially huge expense. For the whole of 2014, the Russian economy was the most toxic in the world, with one calamity coming hard after another.
But here is something nobody expected. In the first quarter of this year, Russia was doing a bit better than anyone could have forecast. We learned last week that the economy managed to grow by 0.4% in the latest quarter, compared to the zero growth or the outright recession that most economists had pencilled in. The ruble USDRUB, -0.86% is the best-performing currency of the last three months. Even the Moscow stock index has started to recover.
In reality, sanctions and a fall in the oil price might have been the best thing to have happened to Russia since the invention of double-glazing. Why? Because the problem for a country rich in resources and well-educated, creative people has been an over-reliance on energy, and a tight-knit kleptocracy that distributes the wealth it generates. It has failed to create its own industrial economy.
But with sanctions keeping out imports, and the oil wealth drying up, it might be forced to do so — and paradoxically that might lead to a stronger recovery.
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