Chasing Portugal
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Chasing Portugal

Russia is facing its first real economic test since the fall of the Soviet Union. The strong growth of the past two years is slowing down as the last of devaluation’s beneficial effects wear off.

The Russian economy looks set to continue growing at about 3.5% to 4% over the next few years. But this is not enough to satisfy president Vladimir Putin, who said in his 1999 state-of-the-nation address that Russia needed to catch up with Portugal, western Europe's poorest nation.

"There has been a good start over the past two years but the pace needs to quicken from here," says Chris Weafer, head of research at Troika Dialog. "The economy has to move away from oil and other commodity dependency. The critical problem is that while the savings ratio is 33% there has been very little investment (other than in the oil sector) and FDI flows are dismally small. Two of the key objectives - attracting foreign capital and diversifying the economy away from oil - have not been achieved and have little prospect of a medium-term solution."

Russia needs to grow by at least 8% a year for the next 15 years if is to overtake Portugal. If it continues at the current pace Putin - and his daughters - will be dead long before the Russian economy gets anywhere close to this goal.

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