Russia’s GDP to Plunge Below $1 Trillion by 2025
The report explores the state of economy in Russia under three political scenarios:
Scenario A. Putin stays in power, The North Korea Scenario
Since the 2014 invasion of Ukraine and annexation of Crimea Russia had gradually slipped down the path of dictatorship, albeit a soft one. In 2021 all pretence of democracy had gone with the return and imprisonment of opposition leader of Alexei Navalny whom Putin’s death squad attempted to poison in 2020. Under this scenario Russia faces increasing international isolation, social unrest, severe demographic problems and dwindling economy.
Scenario B. Putin rescinds his power to a successor of his choosing to keep a “hereditary” social order, Chaotic Soft Dictatorship Scenario
No person in Putin’s inner power circle has Putin’s perceived authority and charisma, history of Russia’s golden years of 2000-2013, or any successes at all. In all likelihood the successor’s rule will descend into soft dictatorship with vast corruption, loosening of power controls and inevitable chaos creating favorable conditions for Orange Revolution.
Scenario C. Orange Revolution, Struggling Democracy Scenario
Any transition of Russia to democracy will not be smooth nor bring immediate economic relief to the country. The new democratic government will inherit crumbling economy, regional fragmentation and balkanisation, diminishing population and aggressive and hungry Chinese neighbour firmly entrenched in the Russian infrastructure.
None of these scenarios promises a bright outlook for Russian economy at least for the period till 2030. A black swan event like Chernobyl or Kursk submarine-style disaster, Syria or Ukraine war quagmire, can drastically disrupt and reshape Russian economy and society in any moment.
Question: Western governments are used to dealing with autocracies, doing business with China, for example. What is different about Russia?
China has a diverse economy based on advanced technological and manufacturing capabilities. The Russian economy has none of China capabilities either in technology or manufacturing. Green hydrogen costs can hit $2/kg benchmark by 2030 or earlier delivering a fatal blow to the Russian economy heavily dependent on hydrocarbons. Russia’s technology edge is slipping, aggravated by brain drain, negative demographics, declining quality of education at all levels. The Russian workforce is plagued by low qualifications, low production discipline, necessity to use migrant labor, shortages of highly qualified IT and engineering personnel, high turnover and low wages. The Russian workforce is declining at the stable rate. The grossly unproportional and ever-growing share of population is employed in Russian government organizations and government-owned companies, military and security agencies, latent unemployment and purely parasitic positions, without contributing much to GDP.
Our bottomline message to government agencies dealing with Russia, Russia’s trade partners and investors: Contain, disengage and divest.