Russia‘s economic growth exceeded 8 % in 2007, almost reminiscent of Chinese growth rates. No one, including ourselves, had expected such economic momentum. The economic success is attributable primarily to the surge in energy prices which, albeit in aweaker form, have propelled aggregate demand. But to attribute the booming economy solely to oil and gas would certainly overlook other factors. In Russia‘s major cities, the private service sector is flourishing - not surprisingly, given the country‘s great need to recover lost ground. And, as is currently the case in nearly every emerging market, the construction industry is booming.

Overall populations in CEE countries and especially the working-age population will decline significantly by 2050. Over the coming decades those in work will have to support a sharply rising proportion of retirees. This will be mitigated somewhat by the fact that in CEE countries the old, pay-as-you-go financed pension schemes have been replaced by more modern multi-pillar pension schemes with substantial funded elements. Apart from pension spending, ageing populations also push up costs for health and long-term care, too. On the other hand, the CEE countries have a high growth potential and for the next 25 years this will probably more than offset the adverse effects due to demographic change. But from 2030 a significant drop in the labor pool will have a negative impact on growth potential.

Russia’s economic upswing is gathering momentum and has broadened substan-tially. This comes at a time at which attention is again increasingly focused on the risk of self-isolation and government meddling in Russian economic policy. But in view of Russia’s current rapid economic integration with the rest of the world, as reflected in foreign trade and capital transactions, we believe that such fears are overdone and that Russia’s path to the market economy is irreversible.