Saturday, October 21, 2006


#5: Is Russian economy currently in a bubble state?

According to the recent anecdotic evidence I am getting, Russian economy might be in a bubble state. For example, I have heard about multiple restaurants opening only to close in a month once the customers do not materialize, banks expanding their branch office network at a breakneck pace with the only hope of being acquired by one of the major Western players, Western European-sized salaries demanded in Moscow by unimportant IT personnel.

So, my question is simple

Did Russian economy enter a bubble during the 2006?

One possible cause for the multiple restaurants opening and then closing is the sea of red-tape that needs to be navigated in order to run such a business. One restaurant near where I had an apartment (at Aeroport Metro) was open for a day, then closed for a week, and so on for many months. When I asked the owner what the problem was, he cited the red-tape required by anti-corruption legislation as the cause. He certainly had not shortage of customers, nor did any other restaurant in the area. That was in 2004, and on my last visit in 2006 he is still in business, as are the other established businesses.

For new restaurants, it may be simply that the market is already saturated. As for the economy in general, there certainly are indications that the property market has reached a price plateau, but so far there are no indications of anything more serious than that.
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