Sinking Fortunes: Putin's Russia Facing Economic, Demographic Collapse

The economic fortunes of Vladimir Putin’s Russia have collapsed dramatically. Once hailed as a great oracle of finance, Putin instead has led his country to the precipice of a double-dip recession. Of course, the gushing about Putin’s financial leadership was entirely wrong from the start, ascribing Russia’s oil windfall to good management by Putin. Now, problems in Russia are so dire that the price of oil is no bulwark against collapse.

Writes financial advisor James Beadle:

Investment in productive capacity declined from 17 percent in March 2012 to minus 4 percent today. 2013 is only the second year of Putin's six-year term, and the investment community is already entrenched in discussions about whether or not he will stand again.

Similar comments from advisor Christopher Weafer:

Economic growth over the first eight months of this year was only 1.5 percent, while the macro data report for August showed a fall of 3.9 percent in capital investment on a yearly basis. Retail sales growth, which averaged almost 6.5 percent in 2012, is now on course to average about 4 percent this year.  How did we move so quickly from the optimism of spring to this dread-filled fall?

Also sounding the alarm is Russian Prime Minister Dmitry Medvedev:

Output growth is supported almost exclusively by large investment projects financed by the government and state-owned companies. We are at a crossroads. Russia can continue going forward in slow motion, with economic growth close to zero, or it can take a serious step forward.

According to the Kremlin’s own newspaper, the true inflation rate over the past year was a breathtaking 22%. A family of three needs a minimum of 76,500 rubles per month to get by, up from 62,500 a year ago, whereas the actual average income for such a family is 66,000 rubles monthly.

As if to set a tombstone on Russia’s economic grave, last week the Wall Street Journal reported that Russia was about to lose its position as the world’s top producer of oil and gas to the United States.

Putin’s responded bizarrely to this news. He announced a crackdown on foreign investment in Russian tech firms, perhaps the only economic sector outside of fossil fuels that might hold some interest to foreign money. Then, he pressed forward with a campaign to massively increase military spending while cutting social services.

The social cuts come at a time of new reports of demographic disaster. As with the economy, it had been widely reported that Putin was able to staunch Russia’s plummeting life expectancy and birth rates, staving off a population collapse. But reports claim that Russian life expectancy suddenly stopped improving last year, and the Russian baby boom also appears to have been temporary.

The latest polls show Russians know they are being manipulated. Putin has taken a major hit over the collapse of his economic policies. When asked about Putin’s actions and personal qualities five years ago, over 70% approved on both criteria. Now, he has slightly less than a majority in both. His overall job performance approval figure has fallen by 25% in that time.

Does Putin imagine he can get away with so much failure? He does. He has two strategies for doing so.