International sanctions failed to prevent the Russian economy from recovering to levels close to pre-war levels earlier this year, according to the center. Latest statistics From the country’s Federal State Statistics Service. western News outlets And Analysts Admit it now too. Vladimir Putin dances on John McCain’s bones, advertisement Russia is not a “gas station,” as Presidential Economic Advisor Maxim Oreshkin said Insists And Europe suffered more from its sanctions against Moscow than Russia itself. But it’s not all sunshine and popsicles. Millions of Russians are paying the price for the increase in military production, with inflation reaching 7.5%. Amid signs of an overheating economy, a slowdown or perhaps even a recession is expected in 2024.
Western sanctions pushed Russia into recession after the invasion of Ukraine in February 2022, but the economy has recovered, at least by certain measures, and the economic downturn has deepened. I finish in August just ten months later, according to the Center for Short-Term Macroeconomic Analysis and Forecasting. While TsMAKP may not be the most objective think tank (its director, Dmitry Belousov, is the brother of First Deputy Prime Minister Andrei Belousov), Russia’s GDP grew by 5.5 percent in the third quarter of 2023 and rose by 3.2 percent in the quarter. 1st of 2023. First 10 months of the year. GDP in 2023 was 1.1% larger than it was during the same period in 2021, before the all-out invasion of Ukraine and sanctions imposed by the West on the country.
Russia’s performance has exceeded expectations of the Russian Ministry of Economic Development and the Central Bank, which said in the spring that GDP growth over the year would not exceed 2%. Now even the analysts are in Bloomberg Economics He says the rise in 2023 will exceed 3 percent.
This week, Vladimir Putin proudly announced that Russia’s annual GDP growth will exceed 3.5%. “Any intelligent person should agree that this is a good indicator for the Russian economy,” the president explained, adding that only 2% of the country’s growth comes from resource extraction.
The rise in economic output this year is notable, but these indicators reflect the country’s recovery from recession, as happened in 2021 after the coronavirus pandemic. In other words, Russia’s high GDP is not the evidence of sustainable development that Putin claims.
From a boosted recovery to an overheated economy
Russia’s manufacturing production was booming, but money from the oil and gas industries nonetheless accounted for nearly a third of total federal budget revenues between January and October 2023. Yes, oil and gas production fell by 2 and 5 percent, respectively, but that was because This is primarily due to the commitments that Russia accepted in the OPEC agreement to reduce supplies. According to former Central Bank Deputy Chairman Sergei Aleksashenko, Russia’s primitive structure of oil and gas exports effectively insulated its economy from international sanctions and helped the Kremlin continue the war in Ukraine.
The federal deficit in 2023 is expected to be just 1% of GDP – half of the authorities’ original estimate – despite high allocations for military production. Meanwhile, annual spending on “national defense” and “national security” will exceed 6.2% of annual GDP and rise to nearly 8% of GDP in 2024, reaching nearly 40% of total budget expenditures. .
Russia finances its deficit spending through reserves held in the National Wealth Fund (whose liquidity is currently estimated by the Ministry of Finance at 6.94 trillion rubles, or 4.6% of GDP) and through government loans. By November 1, the total volume of soft loans reached 11 trillion rubles – 7% of GDP and more than 14% of the credit portfolio of Russian banks. Major state-owned companies (including Russian Railways, AvtoVAZ, Aeroflot, and Roscosmos) began to lobby for preferential terms on loans.
Central Bank Governor Elvira Nabiullina warned that the government was stoking inflation by supporting more and more borrowing, forcing her office to maintain a high key interest rate. In November, the annual inflation rate reached 7.5% and showed no signs of slowing down. What’s slowing down: Russia’s economic growth. According to the Central Bank, the recovery peaked in the third quarter of 2023.
Russia’s humanitarian problem
A shortage of industrial capacity and labor will also limit the development of manufacturing in Russia, says Raiffeisen Bank analyst Stanislav Murashov. In addition, a further rise in the key interest rate will slow down wage growth and complicate the work of developing companies technologically. With nearly full employment, labor will be reallocated across sectors, pushing workers from areas hit by rising interest rates such as construction, retail and finance to companies in Russia’s military-industrial complex, Bloomberg Economics’ chief economist predicts. Alexander Isakovwhich says that raising interest rates in the future will reduce lending and thus consumer demand, increasing risk Another recession In the next six months to more than 70 percent.
More than 85% of companies suffer from a shortage of employees, and skilled workers are the scariest of all. Wages rose nominally by 13.2% in the first nine months of 2023, and unemployment fell to 2.9% (the lowest level in post-Soviet history), but these impressive statistics mask significant problems with labor productivity, which fell by 3.6% compared to 2021. – It is the worst decline since 2009. The migration of skilled workers fleeing war and political repression, not to mention the participation and death of hundreds of thousands of people in the war, has displaced another Russian labor pool. A million or so Workers.
While the invasion remains the government’s top priority, there will be relatively less funding for Russia’s human capital development through spending on education and health care. The longer this situation lasts, the more difficult it will be for the Kremlin to return to resolving complex “civilian” issues, and the easier it will become to prolong the war.
Adapted from Meduza in English by Kevin Rothrock
“Infuriatingly humble alcohol fanatic. Unapologetic beer practitioner. Analyst.”