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It's Not Just Russia: Most Of Eastern Europe Is Suffering From Slower Economic Growth - Forbes
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Russia’s economy had a pretty bad 2013, with growth decelerating sharply to 1.3% from a healthy but not overwhelming 3.4% in 2012. While there was a debate over whether the slowdown was primarily due to domestic or external causes, that debate is largely over: even the Russian authorities now admit that the economy’s problems are mostly due to deficiencies in the growth model, primarily insufficient investment. Whether the authorities will actually do anything remains to be seen, but they’ve given up on blaming their problems on the Euro zone, the Federal Reserve, “Wall Street,” and other handy boogeymen.
However, I’m not so sure that Russia’s problems are exclusively domestic. Why? Because Russia’s low and slowing growth isn’t an outlier among post-Communist countries in Eastern Europe. In fact, most of the region is experiencing a pronounced slowdown that in some cases is even worse than Russia’s. The following chart shows how the region performed in 2013, note that only Romania recorded what would be considered a “normal” level of overall growth
What’s even more interesting is that the region’s levels of growth weren’t just bad, but were decidedly worse than in 2012. Growth didn’t just slow down in Russia, it also slowed in the Czech Republic, Bulgaria, Estonia, Poland, and Slovakia.* It’s true that the slowdowns were not precisely equal in magnitude, but at first glance it would certainly appear that something was exhibiting a systematically negative influence on the entire region.
If Russia’s economy had slowed down while other regional economies had been chugging merrily along then, logically, you would look for an explanation in something unique to Russia. Perhaps its opaque political system, or the corruption that is ever-more pervasive in certain important economic sectors like construction. But that isn’t the case. Countries that have been far more open, transparent, honest, and market-driven than Russia are also seeing economic growth come screeching to a halt. Estonia, in particular, has long been the darling of free market reformers. Its economy nonetheless performed poorly in 2013, as did the economies of reformist darlings Poland and Slovakia.
The issue of slowing regional growth obviously deserves a more in-depth and lengthy investigation, and I will absolutely be following up with some additional articles, but if I had to guess what explains it I’d say that we’re seeing the first economic effects of the post-transition decline in fertility. Recall that after communism collapsed fertility sharply decreased not just in Russia, but all throughout Eastern Europe. Well, a sharp decrease in fertility means that the cohort of workers born during the 1990′s will be much smaller than the one that preceded it, and the youngest portions of the workforce are now those who were born in the 1989-1992 period.
I could be wrong, but I think we are seeing the first economic manifestations of the post-communist world’s troubled demography. And if I’m right, the region’s slow growth won’t ever be “fixed,” but will continue from now until fertility once against exceeds replacement (which is to say “never”).
Follow me on Twitter @MarkAdomanis or on Facebook
* Ukraine’s economy obviously also suffered a horrible slowdown in 2013 but given the current revolutionary situation accurate economic statistics won’t be forthcoming for quite awhile.
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Russia’s economy had a pretty bad 2013, with growth decelerating sharply to 1.3% from a healthy but not overwhelming 3.4% in 2012. While there was a debate over whether the slowdown was primarily due to domestic or external causes, that debate is largely over: even the Russian authorities now admit that the economy’s problems are mostly due to deficiencies in the growth model, primarily insufficient investment. Whether the authorities will actually do anything remains to be seen, but they’ve given up on blaming their problems on the Euro zone, the Federal Reserve, “Wall Street,” and other handy boogeymen.
However, I’m not so sure that Russia’s problems are exclusively domestic. Why? Because Russia’s low and slowing growth isn’t an outlier among post-Communist countries in Eastern Europe. In fact, most of the region is experiencing a pronounced slowdown that in some cases is even worse than Russia’s. The following chart shows how the region performed in 2013, note that only Romania recorded what would be considered a “normal” level of overall growth
What’s even more interesting is that the region’s levels of growth weren’t just bad, but were decidedly worse than in 2012. Growth didn’t just slow down in Russia, it also slowed in the Czech Republic, Bulgaria, Estonia, Poland, and Slovakia.* It’s true that the slowdowns were not precisely equal in magnitude, but at first glance it would certainly appear that something was exhibiting a systematically negative influence on the entire region.
If Russia’s economy had slowed down while other regional economies had been chugging merrily along then, logically, you would look for an explanation in something unique to Russia. Perhaps its opaque political system, or the corruption that is ever-more pervasive in certain important economic sectors like construction. But that isn’t the case. Countries that have been far more open, transparent, honest, and market-driven than Russia are also seeing economic growth come screeching to a halt. Estonia, in particular, has long been the darling of free market reformers. Its economy nonetheless performed poorly in 2013, as did the economies of reformist darlings Poland and Slovakia.
The issue of slowing regional growth obviously deserves a more in-depth and lengthy investigation, and I will absolutely be following up with some additional articles, but if I had to guess what explains it I’d say that we’re seeing the first economic effects of the post-transition decline in fertility. Recall that after communism collapsed fertility sharply decreased not just in Russia, but all throughout Eastern Europe. Well, a sharp decrease in fertility means that the cohort of workers born during the 1990′s will be much smaller than the one that preceded it, and the youngest portions of the workforce are now those who were born in the 1989-1992 period.
I could be wrong, but I think we are seeing the first economic manifestations of the post-communist world’s troubled demography. And if I’m right, the region’s slow growth won’t ever be “fixed,” but will continue from now until fertility once against exceeds replacement (which is to say “never”).
Follow me on Twitter @MarkAdomanis or on Facebook
* Ukraine’s economy obviously also suffered a horrible slowdown in 2013 but given the current revolutionary situation accurate economic statistics won’t be forthcoming for quite awhile.
