As President Vladimir Putin's second term draws to a close, markets could not be more enamoured with Russia's strong economic performance. The country is viewed as a haven at a time of global credit market turmoil. Goldman Sachs is not alone in suggesting that the Russian economy could surpass that of Germany by 2020.
While there can be no gainsaying Russia's very strong economic performance between 2000 and 2007, during which period its economy quintupled in size in dollar terms to about $1,200bn, one is struck by how sanguine markets have become about Russia's economic prospects. For markets ignore several special, and most likely transitory, factors that have underpinned Russia's remarkable economic performance over the past seven years. They also ignore the fact that Russia's inflation demons are rearing their ugly heads and showing every sign of getting worse.
