There is an ongoing debate in the Western media about how the Russian economy works. As mentioned EconomistAfter the Russian invasion of Ukraine, the Central Bank and Rosstat stopped publishing data on everything from trade to investment.
“Many still doubt the reliability of the emerging figures. Investment banks, which no longer advise their clients on Russian companies, have curtailed their research efforts.
“The economy is not crashing”
In a recent article, researchers from Yale University wrote that the exit and sanctions of Western firms from the Russian Federation are “harmful”. Putin’s handpicked statistics are then haphazardly announced by the media and used by multiple experts to make extreme, unrealistic predictions for the Kremlin. “The economy is not collapsing,” expert Chris Weafer said in turn.
“After Russia invaded Ukraine, its economy went into free fall. The ruble has lost more than a quarter of its value against the dollar. The stock market crashed, forcing regulators to suspend trading. Western companies were leaving Russia or hundreds of people promised to do so while their governments imposed sanctions.
Analysts revised their forecasts for Russia’s 2022 GDP in a month from 2.5% growth to close to 10% decline.
The US administration believed that Russia’s GDP would decline by 15% this year, which would “nullify the last 15 years of economic growth”. According to official data, GDP fell 4% year-on-year in the second quarter.
fully developed depression
“Most of the country’s 300 single-sector towns affected by the sanctions are literally in depression. Many people, especially the educated, fled; others move assets out of the country.
Foreigners withdrew $15 billion of direct investments in the first quarter of 2022, the worst number on record, according to the latest available data.
But The Economist’s analysis of data from a variety of sources shows that the Russian economy is doing better than even the most optimistic forecasts, as hydrocarbon sales led to a record current account surplus.
Some of the indicators referenced in the article suggest a recession in the Russian economy, but not a deep recession. “At the same time, inflation is falling. From the beginning of 2022 to the end of May, consumer prices increased by about 10%.
The fall of the ruble made imports more expensive, and the departure of Western companies reduced supply.
But now prices are falling: the stronger ruble has reduced the cost of imports. And Russian inflation expectations fell.
True, the record low unemployment rate of 3.9% in June is misleading. Many companies lay off their employees, some for free. Data from Russian job site HeadHunter shows that the economy-wide job seeker to open position ratio rose from 3.8 in January to 5.9 in May.
The material also cites data from Sberbank, which shows that real consumer spending in July has remained virtually unchanged since the beginning of the year. “Imports fell in the spring, in part because many Western firms stopped delivering them. However, by the standards of recent recessions, the decline was not severe and imports are now recovering rapidly,” the authors write.
“Russia exceeded expectations”
Three factors explain why Russia continues to “outperform” estimates, according to the magazine’s critics. “The first is politics. The doubling of interest rates in February, coupled with capital controls, strengthened the ruble, helping to lower inflation. The general public knows that Elvira Nabiullina, head of the Central Bank of the Russian Federation, takes price capping seriously, even if this does not make her a popular figure.
The second factor concerns the recent economic history of the Russian Federation. Russian Defense Minister Sergei Shoigu may have been right about one thing when he told the British government in February that Russians “can suffer like anybody else,” according to the Washington Post. This is the fifth economic crisis the country has faced in 25 years, after 1998, 2008, 2014 and 2020. Everyone over the age of 40 remembers the extreme economic turmoil caused by the collapse of the Soviet Union.
People learned to adapt instead of panic (or rebellion),” the text says.
Additionally, parts of the Russian economy “have long been quite disconnected from the West.” “This comes at the expense of shorter stature, but makes deadlocks less painful lately. In 2019, the volume of foreign direct investment in the country reached around 30% of GDP compared to the global average of 49%. The country needs relatively few foreign raw material supplies. That’s why the extra curfew hasn’t had much of an impact on the numbers so far,” explains The Economist.
Sanctions will continue
The third factor is related to hydrocarbons. According to a recent report by the International Energy Agency, the sanctions had a limited impact on Russian oil production. “Since the invasion, Russia has sold around $85 billion worth of fossil fuels to the EU.
Given the sanctions against the government, it remains a mystery how Russia spends the foreign currency accumulated in this way.
But there is no doubt that these sales have helped Russia continue to buy imports, let alone pay soldiers and buy weapons,” the newspaper wrote.
“Sanctions will continue. The Central Bank admits that although Russia does not rely so much on foreign materials, it needs foreign equipment very much. Over time, the sanctions will make themselves felt, and Russia will produce goods of lower quality at a higher cost, ”says British journalists.