Economist Nikolaev explained Putin’s words about the future place of the Russian economy

Why is GDP per capita more important than GDP in terms of purchasing power?

If the Russian economy does not lose its pace of development in 2023, it has every chance of becoming fourth in the world in the foreseeable future, displacing Japan from this place. President Vladimir Putin stated this in an interview with Dmitry Kiselev. Let us clarify that we were talking about the GDP indicator at purchasing power parity. At the same time, the head of state noted that the structure of the economies of Germany and Japan differs from the Russian one, so we first of all need to strive for growth in GDP per capita.

Putin, in an interview with Kiselev, said that the Russian Federation could become the fourth economy in the world in the “near future,” displacing Japan. According to the head of state, in terms of purchasing power parity, the Russian Federation has already overtaken Germany and taken its place – fifth – among the largest economies in the world. The German economy shrank by 0.3% in 2023, while the Japanese economy grew by a small percentage. The Russian economy increased by 3.6% at once.

“If everything develops at the same pace as today, then we have every chance to take the place of Japan and become the fourth economy in the world. And in the short term, in the near future. But, and here we must say honestly, objectively, there is a difference between the qualities of our economy,” the head of state noted.

In terms of purchasing power parity, that is, in terms of volume, we are actually now fifth, and there is every chance of taking Japan’s place. But the economic structure of these countries, of course, differs from ours. Vladimir Putin emphasized that we need to strive for growth in GDP per capita.

MK asked the chief researcher at the Institute of Economics of the Russian Academy of Sciences, Doctor of Economics Igor Nikolaev, about how realistic this task is.

– Could Russia become the fourth economy in the world in the near future?

– Of course, in current times, anything is possible, but when you look at what led to the 3.6% growth last year, such a prospect becomes unlikely. Such optimistic forecasts assume that approximately the same dynamics will continue. But these are very high growth rates. Of course, if the economy in Germany and Japan continues to shrink, and in Russia it grows so quickly, then we will overtake them. But we must understand that, first of all, our rapid growth last year was due to the budget impulse, and this is an automatic increase in GDP. In other words, huge amounts of money were poured into the economy – and it gave a corresponding increase. Now let’s look at the three-year budget. In 2024, significant money will continue to be poured into the economy. Federal budget expenditures in nominal terms should increase by approximately 16%. This suggests that the factor that was in effect last year will continue in 2024. But already in 2025, according to the same federal budget, even in nominal terms, our expenses will decrease by 6%. An increase in spending in 2023-2024 will heat up the economy, but after that our spending will be reduced as planned. In this case, it is not clear how our economy can grow so significantly that it can surpass other countries. If the government names these factors, it may become clearer how Russia will overtake Japan. But if we analyze the situation as it is now, there is no answer to this question.

– Vladimir Putin emphasized that we need to strive for growth in GDP per capita. Why did the head of state focus on this indicator?

– Because this indicator is certainly very important. Take, for example, the economies of small European countries – Luxembourg or Switzerland, where the GDP per capita is very significant. This means that the standard of living there is high. Assessment on this indicator is extremely important. Another example is India, which is actually the third largest economy in the world in terms of volume, but with extremely low GDP per capita and standard of living. If we want to improve the standard of living in our country, we must focus on GDP per capita, of course.